The National Association for the Self-Employed gives a word of warning for owners of small business. They need to know the tax classification for any workers they might have. It is not the choice of the worker on whether they are a W-2 employee or a 1099 independent contractor.
The Internal Revenue Service uses a multi-step checklist to evaluate whether a person is an employee or an independent contractor, NASE points out. If an owner is unsure whether to classify a worker as an employee or an independent contractor, here is a quick way to sort them out:
- If the manager controls the who, where, when and how the work is done, then the worker is probably an employee. This means the business owner must file a Form W-2, withhold income and payroll tax, and potentially contribute to their retirement plans.
- If the worker controls their own work product and has other customer, then they are most likely independent contractors. They are responsible for their own forms, including: Schedule C, Profit or Loss from Business; Schedule SE, Self Employment Tax and Form SS-4, Application for Employer Identification Number.
For more details on how to classify a worker, visit the IRS online at
