Many businesses benefit from hiring contractors to assist them. However, many business owners confuse contractors with employees. Many contractors are confused as well. When you hire a contractor, most people know they do not have to withhold taxes. Few people realize that they still need to report their payments to the Internal Revenue Service (IRS). One crucial point is that you can not hire a contractor and treat them as employees to avoid payroll taxes. This process will catch back up with you. When you hire a contractor, you will need the paperwork required for that contractor so you can adequately report their earnings. Also, depending upon the type of contractor, you will need to consider a system for tracking hours worked and the payments you need to process for the contractor. Industry standards typically determine your contractor types.
Determine The Type Of Contractor You Need
Create the Job
Create A Contractor Information Form
Suppose your contractor does not have a service agreement. Use a contractor information form to collect data about the contractor and to put your agreement into writing. You need this form on file for Information, such as the agreed payment amount. Include all the Information for the agreement.
Collect A W-9 Form for 1099 Tax Reporting
Collect a correct W-9 for the contractor. Remember, an incomplete form will cause headaches at the end of the year. The W-9 is used to create the 1099. You will need to send the contractor a W-9 to collect the Information for the 1099. Then you will send the completed 1099 at the end of the year by January 31st of the following year. You only need to send a W-9 if the contractor does not invoice you and collect payments via their payment system.
If you would like assistance with contractor setup and maintenance, I offer contractor management services. $225.00 for the initial setup and then $150.00 per month for up to 5 contractors (each additional contractor $35.00 additional per month).
DIY: Or a one-time setup fee of $150.00 setup for your process (you manage the contractors – collecting the information and contractor collection of payment and time information and questions).
At the end of the year, for a separate fee of $150.00 up to 10 contractors (plus postage and printing fees for any requested mail deliveries.)
Reach out to me for services on the contact me page: https://bpaccountingsolutions.com/about-me/contact-me
Author: Y. Michelle Coard, B.A.S, A.A.S in Accounting
Co-Owner of Business & Personal Accounting Solutions, Corp. based in Fuquay Varina, NC
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