Every year at this time, I get asked this question by many of my small business clients. It is up to you, the business owner to correctly determine whether individuals providing services require the issuance of a 1099. The best way to decipher this is to first understand the relationship with the worker performing the service and the degree of control and independence.
Do you have control over when the worker works? Do you have control over what they are working on and when?
Do you control the finances of the worker’s job to be completed? Are expenses reimbursed?
Are there any types of benefits paid? Is the work they do a key aspect of your business?
It is important to ask yourself these questions in determining whether or not the worker is in fact an employee or independent contractor.
Once you have determined if in fact the worker is an independent contactor, you must then determine if you have paid that worker over $600 for that year. If the answer is yes, they need to receive a 1099 from you.
Here is a helpful list of those payments requiring a 1099 – MISC:
• Any person who rendered service to your business and you paid more than $600 in compensation that are taxed as a sole proprietor
• Any person you paid over $600 in rent to for office space, machines or equipment (excluding corporations or real estate agents)
• Any person providing $600 or more in legal services to your business regardless of whether or not they are a sole proprietor, corporation or partnership need to be issued a 1099.
So as a general rule:
Sole proprietors, partnerships, and LLC’s taxed as sole proprietors or partnerships DO get a 1099.
C Corporations, S Corporations, and LLC’s taxed as C or S Corporations DO NOT need to be issued a 1099.
If you classify an employee as an independent contractor you may be held liable for paying employment taxes unless you have a reasonable basis for not treating the worker as an employee.
And as always, if you have specific questions, we are always more than willing to help you out.
