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Question
As a small business owner. Do I pay taxes on a 1099 I give to my employees?
Answer

Great question! There are two categories of workers: 1099 contractors and W-2 employees.

For employees, you pay them wages and withhold their FICA taxes (Social Security and Medicare) to be remitted to the IRS throughout the year. As a general rule, any payments made to employees should be in the form of payroll with taxes withheld. You would not give an employee a 1099-NEC at the end of the year, you would give them a W-2.

Contractors, on the other hand, pay their own taxes. So any payment you make to a contractor is free from the stress and headache of FICA taxes. At the end of the year, you issue your contractors 1099-NEC’s.

The only scenario in which you could pay your W-2 employee as a 1099 contractor is if you hired them to perform work obviously outside of their regular job description.

For example, if you hired your receptionist’s cleaning company to clean your office on the weekends, you would issue them a 1099 for that work in addition to their W-2.

As tempting as it is, you cannot pretend that your employees are contractors just to avoid dealing with FICA taxes.

If someone works exclusively for you, and you have some degree of control over their work schedule and performance, you are most likely their employer and need to remit payroll taxes.

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Sarah York, EA

Sarah is a staff writer at Keeper Tax and has her Enrolled Agent license with the IRS. Her work has been featured in Business Insider, Money Under 30, Best Life, GOBankingRates, and Shopify. She has nearly a decade of public accounting experience, and has worked with clients in a wide range of industries, including oil and gas, manufacturing, real estate, wholesale and retail, finance, and ecommerce. Sarah has extensive experience offering strategic tax planning at the state and federal level. During her time in industry, she handled tax returns for C Corps, S corps, partnerships, nonprofits, and sole proprietorships. Sarah is a member of the National Association of Enrolled Agents (NAEA) and maintains her continuing education requirements by completing over 30 hours of tax training every year. In her spare time, she is a devoted cat mom and enjoys hiking, baking, and overwatering her houseplants.

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