What Are You Required To Do?

For Independent Contractors:

1. Have each Independent Contractor fill out a W-9 prior to paying them. (See appendix, page 32 for sample) If the contractor will not fill out the form, or if for any other reason you cannot get his or her identification number, you are required to withhold 28% of each payment. This is called Backup Withholding and the money is forwarded to the IRS, just like payroll taxes. Once it is withheld from the payment, you do not refund it to the contractor or pay it back to him or her in any way.
2. Consider entering into a written agreement with your sub-contractor. (See appendix page 33 as an example). Please review the particulars of this agreement, and consult with your attorney regarding modifying the agreement to meet your specific requirements.

Example:

An electrician does some work for you and hands you an invoice for $800.00. You ask him to fill out a W-9. He says he doesn’t have the information on him. You should now offer the electrician a choice. He can wait to collect his payment until the W-9 is supplied, or he can be paid $640.00 immediately, with $160 to be sent to the IRS.

Forms W-9 and 1099

We recommend taking a firm stand that any independent contractor must supply you with a W-9 before you make any payment. This will protect you from penalties at the end of the year when you are required to submit a 1099 to the IRS. There is a $50.00 penalty for each ID number missing from the 1099 and a $50.00 penalty for any 1099 not submitted.

When you issue a sub-contractor’s first check we will need a copy of the W-9 form, including:

1. Name and address
2. Federal Identification Number or Social Security Number

See Appendix A-15 for a sample independent contractor agreement, and Appendix A-16 for a W-9 form.

Any non-corporate service provider that receives $600.00 or more will be provided with a 1099. If you give us all the necessary information, we will prepare these 1099s for you.

You are not required to issue the 1099 to corporations, but it’s in your best interest to have anyone claiming to be a corporation complete a W-9.

Exception: You are required to issue a 1099 to all attorneys for any amount, whether incorporated or not.