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1099-NEC

Best Practices for Working with Independent Contractors

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Just like hiring a new employee, there are tons of best practices when it comes to working with independent contractors. Here are some of our favorites. First Thing’s First: Paperwork You know the feeling when you are thinking about something you have to do, but you’re in bed or somewhere inconvenient, so you tell yourself, “I’ll remember, I don’t need to write it down"? We all know it’s not true, right? That’s the same feeling you should get when it comes to requesting paperwork from independent contractors. Always do it first, so you (and they) don’t forget! Before any work is started or agreements signed, you’ll want to give your independent contractor a Form W-9 and have them fill it out and return it. W-9s are for your records and they help you with filing your taxes later. Once you have that settled, you can start negotiations, contracts, or any other agreement you are looking to create. Establish Communication Expectations and Boundaries This one goes both ways. Because the nature of an independent contractor relationship can range from short-term or temporary to long-term and near-permanent, it’s important to set boundaries for when and how you are going to communicate with each other. This includes discussing which days and times work best for phone calls, emails, texts, etc., as well as which communication medium you would like for specific things like project updates, discussion of issues, or amendments to the original project. Do you want weekly updates? Daily? Would you like to set up meetings after each project phase is complete? The more you offer upfront, the easier it is to work through any issues that may arise later. Boundaries are also important. If your independent contractor doesn’t work weekends or is going on vacation during your time together, those things need to be respected. If you anticipate lots of “off the clock” questions, discuss with the contractor what medium or communication method will work best to catalog …

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Do I Need to File 1099-NEC AND 1099-MISC?

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We’ve talked a lot about the differences between Forms 1099-MISC and 1099-NEC. But are there instances where you’d need to file both? 1099-NEC and 1099-MISC The 2021 drafts for 1099-NEC and 1099-MISC have been out since late last year. The goal of reintroducing the 1099-NEC (last used in 1982) was to keep non-employee expenses separate from the 1099-MISC. As more and more businesses rely on independent contractors and freelancers, the 1099-NEC will become more widely used in the future. When to File Only 1099-NEC If you have payments totaling more than $600 to a non-employee, which includes any person or business hired as an independent contractor or freelancer, you’ll need to fill out the Form 1099-NEC. Here are a few other eFile360 blog resources that talk about how the 1099-NEC works: Filing 1099-NEC: Dos and Don’ts Examples of When to Use Form 1099-NEC When to File Only 1099-MISC Your business will need to file a 1099-MISC for every independent contractor you have paid more than $600 within the tax year for anything other than non-employee compensation. You’ll fill out the 1099-MISC after you request and receive that independent contractor’s W-9. Some main items reported on the 1099-MISC include: Rent Proceeds from a fishing boat Royalties Substitute payments made instead of paying interest or dividends Payments for medical and healthcare Crop insurance proceeds Gross proceeds paid to a lawyer Excess golden parachute payments For more resources to help with your 1099-MISC filing, check out these eFile360 blog articles: What You Need to Know about 1099-MISC Online Form Filing A Guide to Preparing 1099-MISC Forms When Do I Need to File Both? In some cases, you may be required to fill out both 1099-NEC and 1099-MISC. In these cases, you will have paid an independent contractor or freelancer more than $600 throughout the year either for services or parts and materials, while also paying: …

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Hiring Independent Contractors as an LLC

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LLCs don’t always have the ability to hire a part- or full-time employee for a project. Here’s how it works when you are hiring independent contractors as an LLC. Get It in Writing Just as you should always have a clear contract when you are an employer or employee, or even just entering into a good-faith partnership for a limited time, you should know your rights and be transparent with your expectations. For your own safety and peace of mind, you should have a written contract drawn up any time you hire an independent contractor (even if that person is your family member or friend). You’ll also want to make sure you have proof of a real and separate business. Whether this comes in the form of a project estimate complete with letterhead and logo or you take a screenshot of an applicable landing page on the independent contractor’s website. Make Sure They are Considered a True Independent Contractor There isn’t a perfect set of criteria that defines what an independent contractor is. That means you have to do your research – make sure they qualify as an independent contractor. Legal Zoom has some great examples of circumstances that might raise red flags as far as determining an independent contractor’s status: A former employee is rehired to do work similar to their old job, even if temporary or part-time  An intern is doing actual work, not just shadowing or learning; be sure to check the six criteria related to interns You provide the equipment, supplies, tools, or ongoing office space the worker uses  The worker replaces one of your employees or supervises any of your employees The relationship is ongoing and long-term, not project-based Keep Up on Department of Labor Standards The Balance SMB recently reported that the Department of Labor has developed new standards for determining independent contractor vs. employee status. The ruling was set to go into effect in March of 2021, but currently, all regulations were frozen by …

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Ultimate Guide to 1099s

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There are lots of different 1099s and we wanted to help you better understand them, so we’ve put together this guide of eFile360 resources to help you grow your understanding. 1099s: The Basics First thing’s first – what is a 1099? It is, at its most basic form, a tax document that is used to report miscellaneous payments made to individuals who are not employed by your business. Any non-employee who receives more than $600 from you in any given tax year should receive a 1099 from you. There are more than a dozen different types of 1099 forms, the most popular include 1099-MISC (and now 1099-NEC), 1099-INT, 1099-DIV, 1099-K, 1099-B, 1099-G, and 1099-R. For a full list of 1099s and what each one is used for, check out this blog post. Typically, the deadline for filing 1099s with the IRS and also sending them to each independent contractor recipient is January 31. Here’s a quick resource on common 1099 questions. The New Kid: 1099-NEC In tax year 2020, the 1099-NEC was brought back to take the place of Box 7 on form 1099-MISC. The 1099-NEC did not replace the 1099-MISC, it was just reinstated to help streamline the process for filing non-employee compensation. Some examples of non-employee compensation include professional service fees to accountants, attorneys, architects, contractors, engineers, and more; payments for services like parts or materials used to complete the services, director’s fees, and other payments made to freelancers and independent contractors. For more about who fills out the 1099-NEC, click here. We also put together a great list of dos and don’ts as it pertains to the form 1099-NEC. You can read it here. 1099 FAQs The IRS has a ton of great insights into frequently asked questions about 1099s, including: What's the difference between a Form W-2 and a Form 1099-MISC or Form 1099-NEC? How do you determine if a worker is an employee or an independent contractor? I received a Form 1099-NEC instead of a Form W-2. …

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Hiring Independent Contractors – What You Need to Know

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Hiring an independent contractor is a great way to get a temporary or occasional job done when your staff doesn’t have the time or expertise to do a specific job. Here’s what you need to know about hiring independent contractors. Why Hire Independent Contractors Independent contractors are great when you need a specific, but often not permanent or daily, job to be done. Hiring independent contractors can save your company time and money by having skilled professionals on hand to analyze problems and find quick solutions. It also helps by keeping projects that are unrelated to your staff’s core duties off their proverbial desk. No need to pull a vital employee from their normal job to have them try and perform a task they are not familiar or comfortable with, or in some cases qualified for. This also allows you to pay an individual for their services without having to add the financial and resource burden of another employee. Pros and Cons of Hiring Independent Contractors Like with anything, there are pros and cons to hiring independent contractors for your business. Pros: You’ll likely save money: Though you’ll be paying more per hour with an independent contractor, you don’t have to pay a number of expenses associated with hiring an employee, like Social Security tax, Medicare tax, unemployment compensation, worker’s compensation, etc.  It’s more flexible: Hiring and letting go of staff members is hard. With independent contractors, you can feasibly hire double (or half) the contractors on a day-to-day or job-to-job basis, without the attachment issues and repercussions. Cons: You have less control: Since an independent contractor is just that, independent, you don’t have as much say in how and when things get done.  Your workers are more apt to come and go: You trade consistency for efficiency – you may not know which person will show up on a given day to work on a project.   For more pros and cons of hiring an independent …

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Everything You Need to File Taxes as an Independent Contractor

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Independent contractors and employees are treated very differently when it comes to tax prep. Independent contractors are their own small businesses, even if they don’t have an incorporated or otherwise legally recognized business or brand. Let’s discuss what it takes to file taxes as an independent contractor. First, You Need a W-9 The beginning of the tax-filing process for independent contractors always starts with a W-9. Before you even start working on a contracting project, you need to be sure you’ve sent a W-9 with your name, address, and TIN (taxpayer identification number) to the company that is hiring you. It’s important to know who you are partnering with. W-9s must be sent to each company that wants to pay you for your contracting work, and they contain important and sensitive information about your business. Contractors Need Contracts No matter who you work with, whether it’s the President, a reputable local company, or your childhood best friend, it’s always best practice to get things in writing. Not only does a contract outline the expectations of the project for both parties, but it is also a great way to legally document the income you are expecting to make (be it hourly wages, cost of materials, or labor and equipment expenses). Nothing messes up your tax preparation and expectations more than a missing or incorrect payment. Contracts and legal agreements can be as itemized or as broad as you like, but you always want to make sure you protect yourself and your business. If you get paid by the company that hires you (which should happen 100% of the time, but it doesn’t always work that way), you will need to report that income. And if you don’t get paid by the company that hires you – whether it be for legal or illegal reasons – you’ll want to make sure you document the time and materials that you should have been compensated for on your taxes. Form 1040 or 1040SR Working as an independent contractor has tons of perks, but one …

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