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Contractor or Employee? 1099-NEC vs W-2: IRS Tests

October 17, 2026 · 2 min read

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General information, not tax, legal or financial advice. We are not the IRS. Check IRS.gov or a qualified tax professional. Sources read on October 17, 2026. Dates and amounts after 2026 are expected. Examples use made-up numbers. This page contains no affiliate links.

Short answer: Before you decide whether to send a worker a 1099-NEC, the IRS says you must first determine the relationship: independent contractor, common-law employee, statutory employee, statutory nonemployee or government worker. Issuing a 1099-NEC does not by itself make someone a contractor; the facts decide.

The three categories of evidence (IRS)

  • Behavioral: does the business control, or have the right to control, what the worker does and how?
  • Financial: are the business aspects controlled by the payer (how the worker is paid, whether expenses are reimbursed, who supplies tools and supplies)?
  • Type of relationship: written contracts, employee-type benefits (pension, insurance, vacation pay), whether the relationship continues and whether the work is key to the business.

The IRS says there is no magic number of factors and no single factor decides; look at the entire relationship and document the factors used.

Remote workers

The IRS says a person working remotely is your employee under the common-law rules if you can control what is done and how, even if the worker chooses to work remotely.

Where the form fits

Contractors paid at least the reporting threshold get a 1099-NEC (threshold); employees get a W-2. The 1099-NEC instructions point to Pub. 15-A for help deciding.

Practical notes

  • Keep a short file per worker: contract, invoices, who provides equipment.
  • If unsure, the IRS directs to its worker classification resources; a tax professional can advise on your facts.

FAQ

Can we just agree they're a contractor?

The IRS page says the facts of control and independence are considered, not the label.

Is a form available to ask the IRS?

The IRS page we read did not detail the process; check its linked resources.

What we could not verify

  • Pub. 15-A, Topic 762 and Worker Classification 101 were not read in full.
  • Penalties and back-tax exposure for misclassification, and state tests (e.g., ABC tests), not covered.
  • The Section 530 relief and the Voluntary Classification Settlement Program: not read.

Sources