what do I send to my independent contractors as far as a tax form?

2 Replies

In 2014 I hired a few local guys that worked for me as an independent contractor. They made over $600.00 for the year. I had them fill out a W-9 as well as a independent contractor agreement.

Now that this is January what do I send them? 

I'm no expert but recently read up on this and you send them 1099-MISC.

See notes below:

1099's: The Ins & Outs

Processing 1099’s can be confusing and frustrating.  Admin Books enjoys passing on important information that will help you find your way through the requirements of 1099’s.  Here are some facts you need to know!

General Rules:  You must file Form 1099 on any of the following:  
• Any independent contractor or partnership whose services you paid $600 or more for in 2014. 
• Any corporation whose legal or medical services you paid $600 or more for in 2014.
• Anyone you paid $600 or more in rent - whether for space or for equipment - unless they're a corporation or real estate agent in 2014.
• Anyone you paid $600 or more in interest in the course of your trade or business in 2014.
• Anyone you paid more than $10 in royalties in 2014. 
• Any attorney you paid $600 or more in the course of your trade or business in 2014.

Note: The 1099 is due January 31st and the required 1096 is due February 28th. Be sure to collect a W-9 at the time of payment so you know if the business is a sole proprietorship, LLC or Corporation. If it is a corporation, then no 1099 is required.


Addressing the 1099:  If the person you paid uses their Social Security number as a tax ID number (which I don’t recommend), then the person’s full name must be on the first line of the 1099.  If you list the business name by mistake, then you will receive a letter from the IRS saying that the name and ID do not match.  Then the IRS may require you to withhold money from future checks. 

Reimbursed Expenses: If you pay a subcontractor for expenses incurred, do NOT include that amount in box 7.  If you receive a 1099 from someone with reimbursed expenses, like travel or postage, don’t worry.  Show the full amount of income on your tax return and then show the full amount of expenses and it will net out the same.  If you lower the 1099 amount on your return to “correct” it, that will trigger an audit. 

Strict Classification Rules: If you hire a subcontractor, be sure that thestate won’t deem the person as an employee.  A few indications to strengthen your case are:

  • You have a contract agreement between parties.
  • The subcontractor invoices the business.
  • The subcontractor has a business license.  The business does not tell the contractor WHEN to perform the work or HOW to do their job.  The subcontractor uses their own equipment and materials.
  • The subcontractor is available to be hired by other companies.  Governor Brown signed a bill that starting 01-01-12 if any employer is found to willfully misclassify a worker as an independent contractor, they penalties will increase to $10,000-$25,000 per violation. 

1099-K Rules:  There has been a lot of confusion regarding the new 1099-K rules.  All merchant companies that process credit card payments are required to issue 1099-K’s to the seller.  It can be for 1 transaction for any amount.  The main reason for this new law is to capture payments going through eBay, PayPal and Amazon.  However, now the common business owner will get a 1099-K as well if their clients/customers pay them with a credit card.  Here is the confusing part: businesses will provide a 1099-MISC for payments made with a check/cash and the merchant company will process 1099-K’s made with a credit card.  Let’s give some examples to clarify:

Example 1 – You pay a subcontractor $700 for services.  If you paid them with a check, you issue them a 1099-MISC. 

Example 2 – You pay a subcontractor $700 with a check and $800 with a credit card.  You will issue them a 1099-MISC for $700 and the subcontractor’s merchant company will give them a 1099-K for the $800. 

Example 3 – You pay a subcontractor $300 with a check and $800 with a credit card.  We recommend that you still issue a 1099-MISC for $300 because the combine total payment to the subcontractor (check and credit card) was over the $600 amount – this is the safe answer. 

 Oddball Clarifications:  If the contractor is NOT a US citizen and lives in another country, have them fill out a W-8 and keep this on file.  Prepare a 1099, but there will be no tax ID number on the form.  If questioned by the IRS, show them a copy of the W-8. 

If the 1099 comes back to you undelivered, keep a copy for your records to show the attempt. 

If the contractor has already performed their services and you cannot get the contractor to fill out the W-9, keep a log of the attempts to contact them by phone, email or letter.  The IRS has penalties for not sending the 1099 and if you show intent, hopefully there will be grace in the penalties. 

If you find you made a mistake on the amount or tax ID number, you can always correct the form and re-send it by checking the “Corrected” box. 

Corporations do NOT get 1099's, but some people are confused if they should send a 1099 to LLC's. Send a 1099 to single-member LLC's and multi-member LLC's (partnerships.)

1099’s are required to ALL attorneys regardless of their entity!

Thanks 

Jeff

Jeff,

Thanks for the fast reply.

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