The IRS has recently been taking a closer look at businesses that hire 1099 independent contractors. When you hire an independent contractor, you do not have to, or typically will not:
- Provide benefits, including retirement accounts, health benefits, PTO, or leave
- Pay unemployment insurance
- Carry liability, workmen’s comp, or other types of insurance on those workers
- Withhold taxes
- Provide a W-2 form for the employee
For their part, independent contractors:
- Must declare their income (reported by you on a 1099 form)
- Pay their own taxes
- Can deduct business expenses on their taxes
In the past, this definition seemed pretty clear cut. If an individual does not have taxes withheld—regardless of their work location—receive any benefits from your company, or receive a W-2 form, then that person is considered a freelancer, independent contractor, or sub-contractor.
However, the IRS is now considering a number of other factors to determine an individual’s status as an employee or independent contractor.
- Does the person ever work in or visit your offices? Do they have office space?
- Does the person receive any benefits (such as healthcare) regularly offered to W-2 employees?
- How long has the person worked for your company?
- How much do they make with your company? Do they have other clients?
- Does the contractor have his or her own business entity established? Does the individual carry their own insurance?
If you have an independent contractor who does a good job, you give them a lot of work, and have used their services for several years, you could be at risk of an IRS audit because the IRS may try to make a case that the person should not be considered an independent contractor—especially if that person files a Schedule C rather than establishing a separate business identity with an EIN (Employer Identification Number).
You can avoid this situation using AccountingDepartment.com for all your outsourced bookkeeping needs. All AccountingDepartment.com bookkeepers and financial controllers:
- W-2 employees who work specificially for AccountingDepartment.com. We handle their hiring, benefits, pay, and everything else related to their employment
- Live and work in a different area than your offices and never have reason to visit your company.
- Will never receive any benefits from your company; AccountingDepartment.com takes care of our employees, who provide the bookkeeping services you need.
If you want to avoid the challenges that come with hiring and defining 1099 employees, AccountingDepartment.com is the solution. Alleviate one more worry with your taxes by using AccountingDepartment.com. It’s just one more benefit of outsourced accounting services through our company.
