Every business that pays workers needs to issue the correct tax form by January 31. Using the wrong form can result in IRS penalties. Here is what small business owners in New York need to know.
What Is a W-2
A W-2 form is issued to employees. An employee works under your direct supervision, follows your schedule, and uses your equipment. As an employer you are required to:
- Withhold federal and New York State income taxes from each paycheck
- Pay the employer portion of Social Security and Medicare taxes
- File quarterly payroll reports using Form 941
- Issue W-2 forms to all employees by January 31
What Is a 1099-NEC
A 1099-NEC form is issued to independent contractors. A contractor sets their own hours, uses their own equipment, and works for multiple clients. As a business owner you are required to:
- Issue a 1099-NEC to any contractor you paid $600 or more during the year
- File 1099-NEC forms with the IRS by January 31
- Not withhold taxes — the contractor pays their own self-employment tax
Key Differences Between W-2 and 1099
- Tax withholding: employers withhold taxes for W-2 employees, contractors pay their own
- Benefits: W-2 employees may receive benefits, contractors do not
- Schedule: employers set hours for employees, contractors set their own
- Equipment: employers provide tools for employees, contractors use their own
- Payroll taxes: employers pay the employer share for W-2 employees, contractors pay self-employment tax
What Happens If You Misclassify a Worker
Misclassifying an employee as an independent contractor is one of the most common payroll mistakes. The IRS and the New York State Department of Labor audit businesses for worker misclassification. If a worker is reclassified as an employee, you may owe back payroll taxes, penalties, and interest.
If you are not sure how to classify a worker, contact us before you make the first payment.
W-2 and 1099 Filing Deadlines
Both forms must be issued to workers and filed with the IRS by January 31 each year. New York State requires W-2 filing by the same date. Late filing results in penalties starting at $50 per form.
Summary
The main factor is control. If you control how, when, and where someone works — they are likely an employee and need a W-2. If they work independently on their own terms — they are a contractor and need a 1099-NEC. Proper classification protects your business from IRS audits and state penalties.
Not sure how to classify your workers or issue the right forms? Accynta handles payroll, W-2s, and 1099s for small businesses in New York. Contact us before the January 31 deadline.