Many businesses use independent contractors to help them perform tasks or services the business owner and employees cannot perform themselves. Examples of such contractors include, but are not limited to: lawyers, accountants, office cleaners, plumbers, electricians, IT help, repairmen & consultants. Did you know that payments to these independent contractors may need to be reported to the government on a 1099-MISC form? Also, payments to the landlord you rent or lease your business space from may also be subject to 1099-MISC reporting.
It’s best practice to make sure that you ask the contractor or landlord for a completed and signed W-9 before you pay them for the first time . This W-9 form will tell you how the contractor or landlord is taxed which in turn tells you whether or not you will need to track payments to that business for 1099 purposes. Basically, an individual or business to whom you paid at least $600 for services and that is not taxed as a corporation may get a 1099. So ask for the W-9 then take a look at what box they checked. Any person or business that checks the individual/sole proprietor/single member LLC box, partnership box, or the Limited Liability Company box indicating they are taxed as a partnership may be eligible to receive a 1099 from you.
Remember it’s your responsibility as a business owner to make sure that people you are paying as contractors really are contractors and not employees. See the IRS website (or many other websites such as those of CPA and HR firms) for more reading on the difference between employees and independent contractors. Also remember that if someone really is an independent contractor, you should have a W-9 on file for them as well as anything else that may indicate this person or business performs services for other businesses, not just yours. Other documentation you may consider keeping on file for the vendor includes invoices they send you, their business cards, certificates of insurance, etc.
The 1099-MISC laws and regulations can be complex and do contain some exceptions, including an exception for payments made to vendors using third party services like credit cards as well as some exceptions to the exemption for corporations. When in doubt, consult an accounting or human resources professional. See the Helpful Links & Documents page of this website for the most current W-9 form.