Growing a business can be tough. The good news is that in today’s gig economy, there are plenty of people who offer independent contractor services to help. Before you agree to hire a contractor who is short-term, there are a few things you should consider.
Employee or Independent Contractor
When you begin considering to hire a contractor, determine whether the individual you’re hiring should be treated as an employee or an independent contractor.
When you hire a contractor, the situation is unique because the payer has the right to control only the result of the work. With hired employees, the company has more control over the hours worked and how work is performed. However, employees tend to be more expensive as the employer pays for Social Security and Medicare, unemployment taxes, and spends time handling administrative burdens. Independent contractors, on the other hand, pay their own taxes.
The benefits of hiring an independent contractor are no doubt appealing. If you decide to hire a contractor and consider it as the best course of action for your business, there are a few requirements to follow in order to remain tax-compliant.
Proper Paperwork
- Ask your independent contractors to fill out Form W-9 BEFORE you start working with them. This will provide you with their name, address, SSN, EIN, and residency status. You are required to send each contractor a 1099 at the end of each year if you paid them more than $600. These payments will likely be reported to the IRS through Box 7 of 1099-NEC (Non-Employee Contractor). As an exception, payments made to corporations are not subject to 1099 unless those payments are for legal services.
Foreign Contractors
- Payments to foreign contractors are not subject to 1099 if the individual is not an S. person and the services were performed outside the US. The taxpayer should ask the foreign contractor to complete Form W-8BEN as proof that they are not a US person. In the case of IRS audits, this will explain why no 1099 was issued.
Form Submission
- All 1099s must be submitted to the IRS on or before January 31st at the end of the year. Like most federal forms, taxpayers can paper-file or e-file 1099-NEC. Failure to file and late filing of 1099 can result in penalties. Late filing penalties range from $50-260 per return, while intentional disregard is subject to a penalty of $530 per return.
Once you decide to hire an independent contractor, applying the above suggestions can ensure you experience a hassle-free process.
Can Cleer Tax Help Me With Filing Forms to Hire a Contractor?
Absolutely! At Cleer Tax, our dedicated team is committed to addressing the distinct requirements of your business. When it comes to filing taxes, Cleer Tax has you covered.
We provide comprehensive tax advisory services tailored to your specific needs, covering every aspect of compliance and optimization – including helping you hire a contractor. Our goal is to ensure that you capitalize on every available opportunity, leaving no stone unturned when maximizing your tax benefits and minimizing any potential liabilities.
Cleer provides Corporate Income Tax Packages encompassing federal and state income tax filings for a hassle-free experience. We also offer all-inclusive bookkeeping packages, which include your monthly statements plus your federal and state tax returns.
If you have any questions on how to hire a contractor and filing the 1099 form, schedule a consultation to discuss it further. If you have further questions or need assistance, feel free to contact us. Get in touch with us today to work with our team of experts to ensure you know what you’re doing.
