Many employers view paying freelancers as easier than paying employees. You do not need to worry about paying unemployment tax or FICA taxes. Hire independent contractors if you want to save certain costs, like benefits. Make sure you know the steps for how to pay the workers.
Step 1 – Confirm that your worker is an independent contractor, not an employee. Employers do have specific ways to classify workers. You cannot control the way your 1099 workers complete an assignment. They typically work remotely and possibly for another business if they are not self-employed. Review the IRS’ common law rules if you are still uncertain.
Step 2 – Obtain the necessary forms to complete workers’ 1099 forms. Order Form W-9 directly from the IRS or invest in tax software. The form allows employers to gather and input Taxpayer Identification Numbers on 1099 forms.
Step 3 – Calculate the total worker compensation and distribute 1099 copies. Send copies of all 1099 forms to the IRS and your contract workers. The Form 1099-NEC deadline is Jan. 31 of the following tax year.
Step 4 – Save tax documents for the mandated time frame. Employers should generally file and keep 1099 records for three years unless otherwise stated.
Invest in accounting and payroll software to make giving a 1099 form to an employee easier. We let users enter 1099 information throughout the year with our AMS Payroll software. Call us at (405) 340-0697 or download our free demo today.