When it comes to income taxes, there’s nothing more taxing. Your temporary employees are likely confused about what they need to know for tax season. So here are some simple tips to share with them so that they can tackle their 2021 tax returns with ease.
Your temp workers are employees, not independent contractors.
Too often, people get confused by the difference between independent contractors, who work independently and have no taxes withheld from their paychecks, and temps, who 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 temp employees understand the staffing agency is paying their Social Security, Medicare and unemployment taxes, as required by law.
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 January 31, 2021. Remind your employees that if they changed their address since filling out the W-4, they need to inform your agency. Provide a dedicated telephone number or email address so that employees who didn’t receive their W-2 or have questions about it can easily contact someone.
What’s the 1095-C?
If your temporary employees are receiving health insurance benefits from your company, tell them to expect a 1095-C tax form from your company. 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. Employers are required to send out the forms by March 2, 2021.
What should you do if your employee says they owe too much money in 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 withholding form. When you fill out the W-4, you’re asked your marital status and whether you have children. This determines how many “personal allowances” you can claim: The more you claim, the less is tax is withheld from your paycheck. If you’re unsure whether you’re withholding the right amount, 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.
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