What do employers need to know about 1099 independent contractors?

Businesses prepare different forms for employees and independent contractors for tax purposes. For an employee, the employer is supposed to offer a complete copy of IRS Form W-2. For an independent contractor, the employer is supposed to provide a duly filled copy of IRS Form 1099-MISC.

How is an independent contractor classified by the IRS?

Independent contractors are often referred to as consultants, entrepreneurs, business owners, freelancers, or as self-employed individuals. They work for a number of different clients at any given time and are not an employee of any particular company. The IRS has established certain test to determine if a worker is a contractor or an employee.

Can you be an employee and an independent contractor?

The IRS assumes individuals working for an organization are employees unless it is proven otherwise. You probably already understand what an employee is. An independent contractor is a little less clear. From the IRS website:

Why do I need a contractor agreement with the IRS?

A contractor agreement can also help demonstrate that the person is truly an independent contractor and not an employee. It also shows the IRS that the contractor and the hiring firm are embarking on an independent contractor relationship. Who Makes Decisions on Classification?

What tax forms do I need when hiring independent contractors?

Form W-9 must be signed by all independent contractors when they begin work for your business. This form is required to provide a tax ID number (social security number, employer ID (EIN), or other. The W-9 form serves the same purpose as a W-4 form for newly-hired employees.

What is a 1099 form and who gets one?

A 1099 form is a tax document filed by an organization or individual that paid you during the tax year. “Employees get W-2s. This is the equivalent of a W-2 for a person that’s not an employee,” says Debbie Oster, certified public accountant and director of tax compliance at Margolin, Winer & Evens in Garden City, New York.

Who must receive Form 1099-MISC?

A 1099-MISC form must be given to anyone to whom $600 or more has been paid during the year. Contract workers and non-employees need this information to report income on their personal or business federal and state income tax returns. The form is also filed with the IRS for verification purposes.

What is a 1099 contractor?

A 1099 contractor is a person who works independently rather than for an employer. There are significant differences in the legalities of a contractor and employee. While the work can be similar in nature, it is important to follow the law with regard to taxes, payments, and the like. What Is the Difference Between 1099 and W-2?

When to use Form 1099 instead of W-2?

Form 1099 is used to report payments to independent contractors, instead of the W-2 form used for employee wages. The provider of services may be a sole proprietor, partnership or even certain corporations, subject to the 1099 reporting thresholds and method of payment to the contractor.

What kind of employee is a 1099 employee?

A 1099 employee is one that doesn’t fall under normal employment classification rules. Independent contractors are 1099 employees. 3 min read 1. What is a 1099 Employee?

Why do companies have to report payment on Form 1099?

There is a side issue for companies to consider when reporting payment amounts on Form 1099. Small or regular payments for service providers are common, but if a company is paying a large amount to a single contractor in the tax year, the IRS may begin to scrutinize the work relationship, to make sure the worker is not actually an employee.

What can a 1099 MISC worker do for You?

With a 1099-MISC worker (or independent contractor), you can control or direct only the outcome of the work. Basically, you assign work responsibilities — including your expected deliverables — to the independent contractor and conduct limited tax reporting via Form 1099-MISC.

What are the common mistakes with 1099 employees?

Common mistakes with 1099 Employee 1 Not having a written agreement that contractor will be independent of control. 2 Exercising too much control over independent contractor. 3 Basing classification on industry norms. 4 Failing to file Form 1099-MISC. More