A worker’s role determines which information return you would provide. You provide a Form 1099-Misc to independent contractors and Form W-2 to employees. However, there may be instances where a worker may be serving as an independent contractor and an employee for the same entity.
A Federal Tax court case, Ramirez V. Commissioner, stated, “that the fact that a person is an employee in one capacity does not foreclose the possibility that he can be an independent contractor with the same employer in another context”. Employers need to review the details of their payment arrangements with their employees to correctly classify them for W-2 and 1099 tax purposes. Some quick examples of people who correctly should be given both a W-2 and a 1099 in the same year are:
• An employee of a property management company also provides contractor/maintenance services for property management owners, as part of a separate side business. – Result-W-2 and 1099
• An office manager of a real estate agency also performs services outside of “work” as a licensed real estate agent. – Result-W-2 and 1099
If the employee is paid to perform services which, if provided by a non-employee, would result in a “1099” as independent contractor services, the employee would receive a W-2 for their employment and also a 1099 for their “freelance” contractor services.