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Payroll and Contractor Prep: Avoid 1099 and W-2 Mistakes This Year
As 2025 comes to a close, getting payroll and contractor compliance right isn’t just good practice—it’s essential.
Law firms live in a regulated environment. Misclassify someone, file late, or skip an IRS box—and your firm could face hefty penalties, trust violations, or worse. Let’s get you across the finish line with clarity and confidence.
Why This Matters (Even After Q4 Ends)
Even if December feels far behind you, the next step is already due. The IRS requires:
- W‑2s to employees AND Form 1099‑NEC to qualified contractors by January 31, 2026
- File these forms with the IRS (and the SSA) by that same deadline—or face penalties up to $100 per form W2
- If filing 1099‑NEC with the IRS electronically, you have until March 31, 2026 for most forms (paper filers use February 28) IRSCheckMark Blog.
Law firm owners, use this reminder now to prepare your team filings—properly and timely.
Employee vs. Contractor: Why Classification Can’t Be an Afterthought
Misclassification is one of the most common—and expensive—mistakes law firms make:
- Employees (W‑2) must have taxes withheld, payroll processed, and benefits administered in compliance with IRS and employment laws.
- Independent contractors (1099‑NEC) require Form W-9, 1099 issuance for payments of $600+, and cannot have software oversight or employment-like control.
If a contractor should legally be a W‑2 (but isn’t), you risk IRS audits, payroll tax liabilities, and penalties. And it’s not just financial—it’s reputational (and could lead to licensing issues).
Contractor Compliance To-Do List
Before the clock strikes January 1, make sure you:
- Collected signed W-9s from every contractor paid $600+ in 2025.
- Identified who really qualifies as contractors vs. employees—using IRS factors like behavioral control and financial independence.
- Prepared 1099‑NEC forms, differentiating from 1099‑MISC only if required.
- Planned your filing method—e-filing is required when submitting 10+ information returns Accounting Insights
- Notified your team: Confirm they expect their documents by Jan 31.
- Checked for state-level 1099 reporting requirements (e.g., Colorado, Idaho have different deadlines) 1099Online.
W‑2 Prep Checklist for Law Firms
If you have W‑2 employees, ensure you:
- Have accurate payroll data and total compensation numbers.
- Withhold appropriate federal, state, and local taxes.
- Are registered for e-filing (mandatory for 10+ W-2s).
- Submit W‑2s to employees and the SSA by January 31, 2026 IRS+1.
Summary Table: Employer Responsibilities
Responsibility | Deadline | Key Notes |
W‑2 to employees & SSA | Jan 31, 2026 | Required for employees; penalties apply for late or inaccurate filings |
1099‑NEC to contractors & IRS | Jan 31, 2026 | Must be issued for $600+ payments; e-file required if 10+ forms |
1099‑MISC (non-NEC) | Feb 28 (paper) / Mar 31 (e-file), 2026 | For rent, royalties, legal settlements, etc. |
Why You Can’t Delay This Until February
- Penalties increase quickly. The IRS doesn’t wait.
- Your employees and contractors need documents to file their taxes. Don’t risk their trust.
- E-filing isn’t always spot-on. Build buffer time for corrections.
- State laws vary. Digital filing thresholds and paper requirements differ by jurisdiction.
Putting It All Together
You’re not filing a tax form—you’re protecting your firm, your jurisdictional license, and your team.
Let’s review your 2025 payroll and contractor strategy before penalties start stacking up.
