I've paid a former employee and made it a 1099-able event. Should this have been paid through payroll and on the W-2? At this point, can I accept the money back from the former employee and have payroll issue a check?


Whether to issue a 1099 or a W-2 is a question of the status of the individual at the time of his or her service to the company. The person you have paid was in fact an employee at his time of service, a W-2 (and not a 1099) should have been issued.

An individual who has changed status from employee to contractor would require a 1099 (and you need a W-9 from them), provided that they truly qualify as a contractor rather than an employee. Assuming they worked in both capacities within a single year, you would issue both a W-2 and 1099. You are probably aware that the government is vigilant against companies that move workers to contract status from employee status in order to avoid provision of benefits—therefore you must have strong evidence to demonstrate the validity of the change in status. Refer to TAPN's Form 1099-Misc Filing Basics: Independent contractor or employee for more detailed information.

In regard to reissuing a check, we suggest working with your payroll department about how to do it to make sure the taxes are handled properly. There could be tax issues if the payment was made in one quarter but the correction is occurring in another quarter.

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