As
the end of the year approaches, now is a great time to review your expenses for
the past year to determine if your business will be required to file Form
1099-MISC to report nonemployee compensation payments to independent
contractors. However, employers often
struggle with determining who is an independent contractor. The best way to avoid misclassifying workers
is to understand the defining characteristics of independent contractors.
An
independent contractor:
·
Pays self-employment taxes (Social Security and
Medicare)
·
Is trained in their profession
·
Can work with many employers at one time
(different clients)
·
Controls when, how and where the work is
done.
·
Negotiates rates on a per-job basis
·
Uses own tools and equipment to perform the work
·
Does not receive employee benefits
·
Works on a profit/loss basis
·
Does not receive overtime pay
In
general, if you paid a non-employee $600 or more during the past calendar year,
you must report the amount paid in box 7 of Form 1099-MISC. The individual will be required to report
this income on their personal tax return.
You must also report payments of $600 or more for both attorney fees, as
well as payments for services to a Partnership/LLC. Payments to a corporation are generally not
required to be reported.
Questions
about who should be classified as an independent contractor? Call us at (219)
769-3616 or email them to tnewman@swartz-retson.com.
