For the work in sales, the worker is classified as a statutory nonemployee, and the brokerage would report income on Form 1099-NEC. The company should issue the worker a Form W-2 reflecting the wages earned as staff bookkeeper and a Form 1099-NEC reflecting payment to an independent contractor for the artwork.Ĭommon-law employee and statutory nonemployee: A licensed real estate agent splits time at a brokerage working part-time in sales and part time as a receptionist. Sometimes a particular worker may fall into more than one classification for a particular employer.Ĭommon-law employee and independent contractor: A company discovers that one of its bookkeepers is an artist and commissions the person to create a painting for the company reception area.
Both groups should receive Forms 1099 reporting their compensation. Independent contractors are nonemployees under the common law. Such workers are treated as nonemployees regardless of any common-law factors. Three classes of statutory nonemployees are also described in Publication 15-A. While compensation is reported on Form W-2, no income tax is withheld, and the worker reports the compensation on Form 1040 Schedule C, Profit or Loss From Business (Sole Proprietorship). The workers are treated as employees for Social Security, Medicare and FUTA purposes, but they are treated as nonemployees for income tax purposes. Statutory employment status is contingent upon specific conditions. The four classes of statutory employees are described in IRS Publication 15-A, Employers Supplemental Tax Guide. Generally, common-law employees and statutory employees receive a Form W-2, and statutory nonemployees and independent contractors receive a Form 1099-MISC or Form 1099-NEC, Nonemployee Compensation. Such payments are reported on Form 1099-MISC, Miscellaneous Income. For example, compensation for participating in a medical research study is taxable but is not generally considered to be employment, a trade, or a business.
Some compensated activities do not rise to the level of employment or of a trade or business. Workers may be classified as common-law employees, statutory employees, statutory nonemployees, or independent contractors. However, situations exist in which issuing both forms to the same person may be appropriate. Generally, if the work and the working relationship between the worker and the company are essentially the same, then all income should be reported on the same form. The Form 1099 series is used to report nonwage income. Question: Can a company issue both a Form 1099 and a Form W-2 to a worker in the same year, or is this a red flag for the IRS?Īnswer: The Form W-2, Wage and Tax Statement, is used to report wage income.
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