Did you hire an individual to perform work in the course of your business? Does the individual perform work full-time or on a contract basis? As per the IRS, a business can hire an individual in two different ways i.e., employee and contractor. Employers manage the work performed by the employee with a costly benefits package. 1099 employee 1099 Form 2021 work on a project basis and receive payments for the work performed without the deductions and benefits.
Table of Contents
- Who Is a 1099 Employee?
- What Are the Most Common Types of 1099 Contractors?
- Benefits of Hiring a 1099 Contractor
- Which Factors Determine 1099 Worker Status?
- What Tax Forms Do You Need to Collect From a 1099 Independent Contractor?
Doesn’t know about a 1099 employee? Don’t worry! We will let you know about a 1099 employee, the most common 1099 workers, and the benefits of hiring a contractor. Furthermore, you’ll get to know about what tax forms you need to collect from a 1099 worker.
Who Is a 1099 Employee?
1099 employees also known as independent contractors, self-employed individuals, freelancers, etc. They may be a business owner, partnership, estate that provides different services to clients or employers. Furthermore, contractors work with various clients and they get paid for the work performed without any benefits and tax deductions. They don’t enjoy any benefits like paid vacation time, office space, etc. Moreover, 1099 employees are responsible to include the income earned apart from regular salary on the tax return.
What Are the Most Common Types of 1099 Contractors?
There’s no textbook definition to determine the work performed by an individual because the situation to perform the work is different. Compared to employees, the large number of works performed by 1099 workers. So, most small business owners usually get hired to do project-based work with limited resources like budget, time, etc. Content writers, social media strategists, web designers, logo designers, graphic designers, etc the most common professions hired externally.
Furthermore, a 1099 contractor can be your painter, carter, photographer, electrician, cleaning service, etc. Moreover, freelancers are hired to do back-office. For example, if you’re an owner of a restaurant, the waiters, cooks, etc are full-time employees. When you want to update the menus or interior design, then you need to hire a 1099 worker.
Benefits of Hiring a 1099 Contractor
The biggest benefit of hiring a 1099 contractor is “the cost of work”. When you hire a 1099 worker, you will not require to pay health insurance, payroll taxes, social security taxes, etc. Furthermore, you’re not responsible to withhold any taxes from a contractor. Compared to employees, 1099 workers are paid only for the work performed which is significantly cheaper.
Additionally, they are in charge of their methodologies, training. They don’t follow the organization’s rules and regulations to develop their skills. This means the knowledge of a contractor is wider because they have worked with several clients. The contractor responsible for all the tools needed to complete the work which financially and logistically benefits the organization.
Which Factors Determine 1099 Worker Status?
According to the IRS, it’s important to determine the status of every individual you hire for the sake of tax purposes. Consider the below factors in determining whether the person is an employee or a contractor:
Methods of working
If the individual you hired works independently without needing your guidance, then you’re probably dealing with a 1099 worker. You can consider an individual as an independent worker if the knowledge, methodology, tools, etc are entirely up to them.
Degree of control
The individual considered as an employee when you can schedule the working hours. If the degree of control of work depends on the individual, then the individual will be a 1099 contractor.
Length of the relationship
Independent contractors work on a contract basis until the completion of the project. For instance, if you hire an individual to create a brand strategy and give them 3 weeks to complete the work, you can consider them as a freelancer.
What Tax Forms Do You Need to Collect From a 1099 Independent Contractor?
The process of filing 1099 information returns is quite simple when you hire a 1099 worker. Firstly, collect the W-9 Form from the independent contractors you hire at the starting of the contract. W-9 Form contains information about the contractor like name, address, TIN, type of the contractor, etc. With the help of W-9 Form information, you can easily fill out the 1099 Form without any errors. Furthermore, ensure to collect the W-9BEN Form if you hire a contractor who’s not a U.S. Citizen.
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