For every business and employee, payroll forms are a part of day-to-day operations. Unfortunately, 1 in 3 businesses are penalized by the IRS for payroll errors which in-part is due to mishandling tax forms. Within the senior living industry, there are a wide variety of roles to fill, and ensuring that each employee receives the correct forms, completes them correctly, and has them filed/documented properly is vital to the success of running smooth operations. At Procare HR, we help senior living organizations and skilled nursing facilities (SNFs) with all things human resources – including payroll. That’s why we created this resource for organizations and employees to navigate payroll and the different tax forms to ensure everyone thrives.
What is a W-4 Form?
The W-4 form, officially called the “Employee’s Withholding Certificate,” is filled out by employees to inform their employer of how much federal income tax should be withheld from their paycheck. New employees must complete a W-4 when they start a job, but they can update it anytime if their financial situation changes (e.g., marriage, divorce, or the birth of a child). Key sections include personal information (name, Social Security number, and filing status), any dependents, and optional adjustments for additional income or deductions.
Impact on Paychecks
The more allowances or deductions claimed on a W-4, the less tax will be withheld, which increases take-home pay. Conversely, fewer allowances mean more taxes are withheld, but you may receive a larger tax refund. Employees should review their W-4 annually to avoid underpayment or overpayment of taxes.
What is a W-2 Form?
The W-2 form is a year-end tax document that employers must send to both employees and the IRS. It summarizes the employee’s total earnings, the amount of tax withheld, and other contributions such as Social Security, Medicare, and retirement plans. Employees use the W-2 form when filing their personal income tax returns. The information on the W-2 helps determine whether they owe additional taxes or are due a refund. Employees should carefully review each box on the form to ensure the information is accurate and matches their pay stubs throughout the year. Having an HR partner that provides a centralized location where employees can view pay stubs helps remove any guessing that may happen while completing a W-2. Filing a tax return without a correct W-2 may lead to delays or errors in processing by the IRS.
What is a 1099 Form?
A 1099 form is used to report income earned by independent contractors, freelancers, or other non-employee workers. Employers are required to issue 1099 forms to anyone they paid $600 or more in a calendar year. Unlike W-2 employees, 1099 workers do not have taxes withheld by their employer; instead, they are responsible for handling their own tax payments.
Types of 1099 Forms
The most common types of 1099 forms include:
- 1099-NEC (Nonemployee Compensation): Reports payments made to independent contractors.
- 1099-MISC: Reports miscellaneous income such as rent or legal settlements.
- 1099-INT: Reports interest income.
Tax Responsibilities of 1099 Workers
1099 contractors must pay self-employment taxes (Social Security and Medicare), usually through estimated quarterly tax payments. It’s essential for 1099 workers to maintain thorough records of their income and expenses to claim eligible deductions during tax season. In senior living, it is important to know what roles are considered independent contractors versus W-2 employees; therefore, having a partner that not only understands payroll, but also senior living is an incredible resource to tap into. Procare HR can assist with the clarifying categories and setting each employee up for success.
Learn more about Procare HR services
Key Differences Between W-4, W-2, and 1099 Forms
When executing payroll, it is important to understand key differences between tax forms and how they impact the employee/contractor. Having an HR partner can help alleviate the stress of organizing these forms and successfully executing all of the different payroll processes.
Employee vs. Contractor Classification
The primary difference lies in worker classification. W-2 forms are issued to employees, while 1099 forms are issued to independent contractors or freelancers. Employers must correctly classify their workers to comply with labor laws and avoid potential fines or penalties. Misclassification can lead to issues with both the IRS and the Department of Labor.
Tax Withholdings
Employers withhold federal and state taxes for W-2 employees based on their W-4 form. In contrast, no taxes are withheld for 1099 contractors, who must handle their own tax obligations. Independent contractors can often deduct business-related expenses, such as home office costs, mileage, and equipment, while W-2 employees have more limited deduction options.
Benefits and Deductions
W-2 employees often receive benefits such as health insurance, retirement plans, and paid leave. Contractors do not receive these benefits, but they may be eligible for tax deductions related to their work expenses.
Common Mistakes and How to Avoid Them
Incorrect W-4 Withholdings
Employees who don’t update their W-4 after major life changes may find that too much or too little tax is withheld. This can result in a surprise tax bill or an unnecessarily large refund. Employees should revisit their W-4 annually, especially after changes like marriage, divorce, or additional dependents.
Missing or Incorrect Information on W-2s or 1099s
Errors in Social Security numbers, names, or income figures can lead to delays in filing taxes or even trigger an IRS audit. Employers and contractors should double-check all details before issuing these forms.
Misclassification of Workers
Improperly classifying a worker as a contractor instead of an employee can lead to significant legal consequences. Employers should familiarize themselves with IRS guidelines on worker classification to avoid these pitfalls
Understanding and properly managing W-4, W-2, and 1099 forms is essential for maintaining a smooth and compliant payroll process, especially in senior living organizations and SNFs where accurate employee classification and tax filing are critical. By staying informed about these forms and avoiding common errors, you can ensure that your team and business thrive during tax season. For expert assistance in navigating payroll, classifications, and compliance, partner with Procare HR as your trusted resource for all things HR in senior living. Contact us today to learn how we can support your organization’s success.