Reclassifying W-2 To 1099

[Dunlop]

Hello and thank you for taking the time to read this.  Is it legal to reclassify a W-2 worker as a 1099.

Also if you have workers who are performing the same job classified as both 1099 and W-2 and want to make them all one classification is it legal to choose either way.

Thank you so much for your help.

[Faodhagan]

Melissa:

This raises questions mostly governed by tax law, so you may also want to consult a tax advice site or talk to a tax expert.

W-2 workers are "employees."  The employer must, as you probably know, deduct income and other taxes from the pay of employees. Workers who receive a Form 1099 are "independent contractors."  IC's are expected to pay all their own taxes; the firms or persons they work for are not legally responsible for an independent contractor's taxes.  Again, you probably know this, or you likely would not be asking this question.  :-)

There is a long list of factors which the IRS(or another agency such as the EEOC or the Department of Labor) and the courts would look at to decide whether someone who is treated as an independent contractor is really an employee.  The list is easily available in many locations on the Web, but here is a link to what I believe is the current IRS publication dealing with this issue:http://www.irs.gov/pub/irs-pdf/p15a.pdf

As you will see by reviewing this publication, the proper classification depends on the specific facts applicable to each worker, so it is quite possible that a number of people who are doing essentially the same job could be either W2 employees or 1099 independent contractors.  Each worker's individual situation needs to be evaluated against the IRS tests listed in the publication.  But it's very important to get it right, and if there is still significant doubt after reviewing all the facts, I would advise any client to treat the person as an employee.  Otherwise, the taxes, interest and penalties can become quite expensive in the event of an audit or other legal challenge.

I hope you find this helpful.