So… Who Actually Needs To Get A 1099
I’m been getting the question a lot lately about for who businesses need to file 1099 forms. And while the standard answer of “Independent Contractors” is a little misleading.
You see, in the eyes of the IRS, there is a fine line between someone being an independent contractor and an employee. And the consequences of filing wrong can be very hurtful to your business.
So I thought I would review the guidelines from the IRS with you to help you understand the difference between an independent contractor and an employee because there are a few guidelines that surprised me when I reviewed them.
Here’s what the IRS defines as an independent contractor:
“The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”
Let’s decode that. You can count someone as an independent contractor only if you don’t have complete control over their work time. For example, they pick their hours, work on their equipment, or work on a paid-per-project basis.
If, however, you demand they work set hours, have to come into your office to work, or require they work on your equipment - you could run into issues with IRS considering them an employee.
And the fine for misclassifying an employee is $50 per missing 1099 form or up to 41.5% of back taxes for three years!
If you need help figuring out whether someone is an employee or independent contractor, you can use a FORM SS-8:
Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.
And if you need help verify all the TIN, EIN and SSN records in your accounts before you file, check out www.feinsearch.com and www.realsearch.com. We can help you quickly and easily verify all the records in your system before the Jan 31st deadline.