Do we input independent contractor pay into payroll history?

larina · ‎November 13, 2025

My employees started off s independent contractors. We're transitioning to a new Payroll system & then will be W2 employees moving forward. Do I need to input their 1099 earnings into payroll history?

Mirriam_M · ‎November 14, 2025

Hello, Larina. Thank you for reaching out.

I understand that transitioning from independent contractors to employees and navigating a new payroll system can take some adjustment, but I'm here to assist you.

You don’t need to input 1099 earnings into payroll history since these payments are unrelated to payroll taxes and W-2 wages. Contractor earnings should be handled as accounts payable and reported separately on Form 1099-NEC. Including 1099 payments in payroll history could cause compliance issues or misrepresent tax obligations.

To transition smoothly, start fresh payroll records for W-2 employees from the date they become employees. Be sure to keep 1099 payments and W-2 wages separate to avoid tax filing errors.

For more detailed guidance, I recommend reaching out to your accountant. They can clarify employer obligations, tax filing changes, and how historical contractor payments fit into the process.

If you need further assistance or have questions, feel free to let us know. We’re here to help!

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FishingForAnswers · ‎November 14, 2025

@larina Well, technically, I suppose you have the option to do that, but I wouldn't advise it.

At best, it would involve a lot of busywork that will ultimately cost you penalties and interest for whatever payroll tax reports you'll need to amend to reflect the higher wages and unpaid payroll taxes.

It's acceptable to issue a 1099 and a W-2 to the same person in situations like yours. The government only gets iffy when you're playing games, trying to avoid company-paid payroll taxes, or otherwise incorrectly classifying workers for your own benefit.

So, no, you do not need to retcon their 1099 payments into gross payroll. Just don't make a habit of flip-flopping between the two systems.

Mirriam_M · ‎November 14, 2025

Hello, Larina. Thank you for reaching out.

I understand that transitioning from independent contractors to employees and navigating a new payroll system can take some adjustment, but I'm here to assist you.

You don’t need to input 1099 earnings into payroll history since these payments are unrelated to payroll taxes and W-2 wages. Contractor earnings should be handled as accounts payable and reported separately on Form 1099-NEC. Including 1099 payments in payroll history could cause compliance issues or misrepresent tax obligations.

To transition smoothly, start fresh payroll records for W-2 employees from the date they become employees. Be sure to keep 1099 payments and W-2 wages separate to avoid tax filing errors.

For more detailed guidance, I recommend reaching out to your accountant. They can clarify employer obligations, tax filing changes, and how historical contractor payments fit into the process.

If you need further assistance or have questions, feel free to let us know. We’re here to help!

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Do we input independent contractor pay into payroll history?