When you issue a 1099 to a contractor, you need to make sure you get it to the right person, at the right time and with the right information. If you are a construction employer using independent contractors to complete some or all the work associated with your business, you should know some specific tax rules. While you may issue them a check, transfer or other payment methods, contractors are not considered employees. Despite this, you are still considered an employer, and need to follow the applicable tax laws. To remain compliant, you will need to issue a 1099 form to each contractor.
Who Receives a 1099? When Do They Need it?
Where an employee receives a W-2, any contractor—a person who does work for you on a temporary, per-item or per-project job and is not an employee of your company—should receive a 1099 if you’ve paid them over $600 during the tax year. Unlike an employee of your company, you don’t withhold any taxes from the money a contractor receives, but they will still owe taxes to the IRS depending on their personal situation.
You must send the 1099 to a contractor by the end of January, and there are penalties for your business if you fail to do so.
Issuing the 1099
Issuing a 1099 to a contractor requires a few steps and verifications, some of which you can do when you hire the contractor, and some which you need to complete at or near the end of the year.
- Make sure you are hiring a contractor and not an employee. The IRS has specific guidance to help you determine which type of hire you are making.
- When you hire a contractor, ensure they complete a W-9 form. You need the W-9 to complete the 1099 and doing it upfront saves you time.
- Obtain official 1099 forms from the IRS or approved tax software, and make sure they aren’t samples or examples from other vendors or websites.
- Complete the 1099, making sure you verify the information matches the W-9 and is confirmed by the contractor.
- Complete your own form 1096—which has a tally of all the 1099s you send out. The IRS requires you to have a copy of your 1096 and each 1099 you issue to a contractor.
- Get those 1099s out to your contractors by the deadline.
Leave it to the Professionals
Professional bookkeeping services for construction companies can help you keep your finances in order, including payroll management, book reconciliations, financial reporting and advisory services. Working Numbers can help you sort out your W-2s from your 1099s and provide a wealth of additional services from a single project to ongoing bookkeeping tasks. Contact us today and get those 1099s issued to a contractor the right way.