how do i 1099 an employee
1099ing an Employee: What to Know Before You Start
If you’re a small business owner, you may find yourself in a situation where you need to hire someone to help you out with a project or to fill a specific need. In these cases, it’s important to understand the difference between an employee and an independent contractor, and how to properly 1099 an employee.
What is a 1099?
A 1099 is a form issued by the Internal Revenue Service (IRS) that must be completed by employers to report payments to independent contractors. It is also known as an “information return”, as it is used to report income other than wages, salaries, and tips.
What is the Difference Between an Employee and an Independent Contractor?
The main difference between an employee and an independent contractor is that the latter is in business for themselves. They are in control of their own work, and the employer has no control over how, when, or where the work is done. An independent contractor is responsible for paying their own taxes, and the employer is not responsible for withholding taxes from their pay.
How to 1099 an Employee
If you have determined that the person you are hiring is an independent contractor, then you must 1099 them. Here are the steps you need to take:
1. Determine Eligibility: Before you can 1099 an employee, you must determine if they are eligible to be classified as an independent contractor. To do this, you must consider the following factors:
• Does the worker have their own business and pay their own taxes?
• Does the worker provide their own tools and materials?
• Does the worker control their own work schedule?
• Does the worker have the right to reject work assignments?
If you answer yes to all of these questions, then the worker is likely an independent contractor and you can 1099 them.
2. Obtain the Necessary Documents: Before you can 1099 an employee, you must obtain the necessary documents. This includes a signed W-9 form from the contractor, which provides your business with the contractor’s name, address, and Social Security number. You will also need to obtain a completed 1099-MISC form.
3. Calculate and Report Payments: You must calculate the total amount you paid the contractor during the year and report this on the 1099-MISC form. You must also report any non-cash payments, such as goods or services, that you provided to the contractor.
4. Submit Forms to the IRS: Once you have completed the 1099-MISC form, you must submit it to the IRS by the due date. This is typically the last day of February for the previous year’s payments.
5. Provide Copies to the Contractor: You must also provide the contractor with a copy of the 1099-MISC form. This must be done by the same due date as the IRS filing.
By following these steps, you will be able to properly 1099 an employee. It is important to remember that if you misclassify an employee as an independent contractor, you may be subject to penalties and fines. Therefore, it is important to be sure of the worker’s status before you 1099 them.