1099 vs W-2: Common Mistakes with Classifying Workers.
📅 By Dr. Bryan Raya, Certified QuickBooks ProAdvisor | DBR Bookkeeping
If you’re a small business owner, coach, creative, or LLC operator, chances are you’ve hired someone to help your business grow—maybe a VA, second shooter, massage assistant, or editor.
But here’s a critical question that often gets overlooked:
👉 Are they a 1099 contractor or a W-2 employee?
Misclassifying workers is one of the most common tax season mistakes—and it can cost you thousands in penalties.
This guide breaks down the top mistakes business owners make when dealing with 1099 classification, plus how to avoid them and stay compliant.
⚠️ Common Mistakes When Classifying Workers
❌ Mistake #1: Calling Contractors "Payroll"
Paying someone weekly with Venmo or Zelle doesn’t mean you have payroll. True payroll involves withholding taxes, running W-2s, and complying with state and federal regulations.
✅ Solution: If they work under your control (you set hours, provide tools, or train them), set up a payroll system like Gusto or QuickBooks Payroll.
❌ Mistake #2: Issuing a 1099 to Everyone
Not everyone qualifies as an independent contractor. If the person works only for you, takes direction from you, and doesn’t offer services to others—they’re probably a W-2 employee.
✅ Solution: Use the IRS 20-factor test or the Common Law Rules (behavioral, financial, and relationship) to assess the role correctly.
❌ Mistake #3: Not Filing 1099s at All
If you paid a contractor over $600 during the year and don’t issue a 1099-NEC, you could face penalties for each form you fail to submit.
✅ Solution: Track contractor payments throughout the year and file 1099s by January 31.
❓ FAQ: 1099 Classification Mistakes
Q: What’s the penalty for misclassifying a worker as a 1099?
A: The IRS can charge you back payroll taxes, penalties, and interest. In some cases, state fines apply too.
Q: Can I use contractors to avoid paying payroll taxes?
A: That’s considered intentional misclassification—and it’s a red flag for audits. Use contractors only if they meet the legal definition.
Q: What if I paid someone through Cash App or PayPal?
A: You still need to report payments if they qualify for a 1099—regardless of how you paid them.
💡 “Getting your worker classification right is about more than taxes—it’s about protecting your business.”
Dr. Bryan Raya helps small business owners avoid IRS penalties, set up clean systems, and confidently grow their team.
📞 Book a free call with Dr. Bryan Raya to review your worker classifications and build your business the right way.
Let’s start Doing Business Right.
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