When it comes to income taxes, there’s nothing more taxing than tax season. Your W-2 temporary employees are likely confused about what they need to know.
In this article, we’ll cover some simple tax tips to share with them so that they can tackle their annual tax returns with ease.
Do temporary employees get a W-2 or a 1099?
This is one of the most common questions when people ask for tax season tips. The answer is straightforward: If you're a temporary W-2 employee working through a staffing agency like Nesco Resource, you'll receive a W-2 form, not a 1099.
Your temp workers are employees, not independent contractors.
Too often, people get confused by the difference between independent contractors (IC) and temporary employees (temps). ICs are people who work independently and have no taxes withheld from their paychecks. Temps, meanwhile, are employees of a staffing agency.
Contractors receive a 1099 form from their employer rather than the W-2 reserved for employees. Make sure your W-2 temporary employees understand the staffing agency is paying their Social Security, Medicare and unemployment taxes, as required by law.
How are temporary workers taxed?
Temporary W-2 employees are taxed just like permanent employees. The staffing agency that employs them serves as their employer for tax purposes. This means that the agency handles temporary employee tax withholding for federal income tax, Social Security, and Medicare contributions.
For the temporary W-2 employee, this provides a significant advantage since they don't have to worry about making quarterly estimated tax payments or handling the self-employment tax calculations that independent contractors face. The staffing agency manages these responsibilities on behalf of the employee, simplifying the tax process considerably.
When temporary employee tax withholding is handled correctly, it helps ensure that temp workers don't face unexpected tax bills at the end of the year. The withholding amount is based on the information provided on a form that employees complete when they start working with the staffing agency.
When can they expect to receive their W-2 and other forms?
The W-2, or detailed records about an employee’s earnings, tax payments and other deductions, should be mailed to workers no later than the W-2 deadline of January 31.
Remind your temporary W-2 employees that if they changed their address since filling out the W-4, they need to inform your agency. This is one of the most important tax tips to offer that ensures timely filing.
Provide a dedicated telephone number or email address. This is so that employees who didn’t receive their W2 or have questions about it can easily contact someone.
Do temporary employees pay federal taxes?
Yes, W-2 temporary employees are responsible for paying federal taxes, just like any other employee. The difference is that these taxes are typically withheld from their paychecks by their employer (the staffing agency).
This means that a W-2 temporary employee will see deductions for federal income tax, Social Security, and Medicare on each pay stub. These withholdings are then reported on the W-2 form at the end of the year, which they'll use when filing their tax return.
For those considering a temp employee for a permanent position, it's worth noting that the tax treatment remains consistent regardless of whether the employee is temporary or permanent. The key difference is who serves as the employer of record for tax purposes.
Do temp agencies take out federal taxes?
Yes, temp agencies absolutely take out federal taxes from temporary W-2 employee paychecks. As the legal employer, staffing agencies are required to withhold federal income taxes based on the information provided by an employee’s W-4.
Temporary employee tax withholding typically includes:
● Federal income tax
● Social Security tax (6.2% of wages)
● Medicare tax (1.45% of wages)
● State income tax (where applicable)
● Local taxes (where applicable)
Working with a staffing company means having these tax obligations handled professionally, which can be a significant relief for many workers who would otherwise need to manage these complexities themselves.
What’s the 1095-C?
If your temporary W-2 employees are receiving health insurance benefits from your company, tell them to expect a 1095-C tax form from you. It contains proof of insurance and the months that an employee was covered, along with information about the type of health coverage that an employer offered in the prior year.
The 1095–C is essentially formal proof of insurance since the Affordable Care Act requires most people to have health insurance, or face a penalty. Typically, most tax filers do not need to do much with it except file it away with their tax records in case they get audited.
In terms of the tax filing deadline, employers are required to send out the forms by March 2.
What should you do if your employee says they owe too much money in temporary employee taxes?
While the average American worker gets a tax refund of $2,711 from the federal government, some people end up owing money at tax time. Too often, this is because they claimed too many personal allowances on the W-4 form.
When an employee fills out the W-4, they’re asked about their marital status and whether they have children. This determines how many “personal allowances” they can claim. The more allowances claimed, the less tax is withheld from each paycheck.
If your employee is unsure whether their temporary employee tax withholding is the right, they can use the IRS’s online withholding calculator to determine the right amount.
The good news is that a W-4 is not set in stone. Employees can modify this withholding form at any time by contacting their staffing agency.
Bonus tax tips for temporary workers
Still feeling challenged this tax season? Here are some additional tax tips to make filing easier as a W-2 temporary employee:
1. Keep a dedicated folder for all pay stubs throughout the year to verify your W-2 accuracy.
2. Track job-related expenses that might qualify for deductions, even as a W-2 temporary employee.
3. Consider filing electronically for faster refunds and fewer errors.
4. Review your temporary employee tax withholding with each new assignment.
5. File early to avoid last-minute stress and potential identity theft issues.
Remember, proper preparation can make tax season significantly less stressful. Most temporary W-2 employees qualify for free filing options through the IRS website, which can save you money while ensuring compliance with all tax requirements.
Work with a staffing partner you can trust
Contact Nesco Resource today to learn how we can help with all of your employee needs. From one day to long-term assignments, we're here to help make sense of any confusion regarding these tax tips.
Our team understands the complexities of temporary employee tax withholding. We can provide guidance to both employers and temporary W2 employees to ensure compliance and minimize confusion during tax season.
As a nationally ranked workforce solutions company with almost 70 years of experience, Nesco Resource is committed to transforming lives by connecting talented individuals with opportunities that match their skills and goals. We handle all aspects of employment, including proper tax documentation and reporting, so you can focus on building your career or growing your business.