What is a 1099?

A 1099 is just like a W-2, but it’s for an independent contractor as opposed to an employee. It’s a way of telling the contractor AND the IRS how much the contractor got paid for the year. The IRS then compares the 1099 they get to what the contractor puts on their taxes.

What is the W-9?

A W-9 form is quick and simple. It requests basic information about the contractor that is readily accessible. Most contractors can complete the form on the spot.

If you or your organization is paying someone for any work, rent, or goods, regardless of how often they work or how old they are, have them fill out a W-9 form. Contractors need to complete the W-9 before you pay them.

Do we really need to fill out the W-9?

Yes. Um, it’s the law. We are glad to teach you about these issues prior to any legal consequences, and that’s part of our role in serving you. But here’s the bottom line: your people need to fill out the W-9s so your organization can be in compliance with the law. (The IRS isn’t always as kind as we are.)

Can’t we do it under the table?

Ummm… NO! We get the idea behind this. But in order to act with integrity, it is your responsibility to follow through with the laws related to paying people. An organization cannot maintain integrity if they are willing to assist people in avoiding taxes. It’s that simple: be honest.

But my child is only 16.

The IRS is not concerned with how old your honor student is. They want you to fill out the form.

But I am doing a favor to this business by not reporting my income.

If you’d like to help them out, then volunteer your time. Then they won’t have to pay you. But since they are paying you, go ahead and fill this out the form so can you get your money. It really is that simple.

But I am only going to do this job (project, whatever) once.

Think you have a short-term contractor? They’re not planning to do this task more than once? We can offer you loads of examples of how that statement was actually the beginning of a great relationship. The person will likely do the work once, and then word will spread about how great they are. They will start getting calls from other locations, departments, etc., and before you know it, they have passed the $600 threshold. Suddenly, you’ll be caught up during a busy time of year, and you’ll still have to track them down to get this form filled out. Just go ahead and have them fill it out now. ‘Cause they might be one stellar contractor who will turn out to make some serious cash.

Is there any way to work around this?

You can attract more volunteers! Perhaps you are paying someone to do tasks that could be completed by a volunteer instead? When people are looking to get involved and connected, they are willing to help out. As you broaden your volunteer base, you’ll have less W-9 forms to complete and less 1099′s to send.

By the way, paying someone in cash to avoid the W-9 is a no-go.

If you really want to skip this, then the other legal option is to withhold 28% of the payment, then fill out the W-4 form, add them to payroll, pay payroll taxes on them, and submit it that way. This seems like a poor option since the [now] employee will lose a large chunk of pay up front, and in the end, there is still a form to fill out.

Be smart. Fill out the W-9. Have we proved our point yet? ☺

When is the 1099 required?

ALL individuals not on payroll are subject to 1099 reporting.

Corporations with “Inc” in their name are NOT subject to 1099.

A company that has “LLC” in their name MUST fill out a W-9. They may (or may not) be subject to a 1099, but the only way for us to know is if they fill out the W-9.

A company that does not have “Inc” in their name could be a sole proprietor, and the company IS subject to 1099.

All legal fees ARE subject to 1099.

1099’s will only be issued when total payments for the year exceed the IRS threshold (currently $600).

When will the IRS get involved?

The IRS gets involved when the contractor makes $600 or more. At that point, the payroll provider (or accounts payable person) fills out a 1099 form and sends it to the contractor and the IRS. That contractor will then comply with the tax liability that is relevant to his/her situation.

Per IRS regulations, all of the 1099 forms must be submitted in a batch—all the forms at once. So, if your organization is late with your 1099 (they are due 1/31), you must pay a penalty to the IRS – per form! – even though it might have been only one W-9 holding it up. So, nobody wants to spend the month of January trying to track down W-9’s for a whole year of payments. It’s best to get the W-9 BEFORE you pay the contractor! Make it a requirement… Don’t pay any contractors until you receive a W9.