If you are running a business and you are looking to prepare important tax documents, you will run across and important question — does the person in question qualify as an employee of your company or a contractor? The difference will be crucial when it comes to how you pay your end of the taxes and what documents you need to file with the IRS. When it comes to hiring a contractor, you will need to file 1099s for contractors. If, however, someone is your employee, the process is entirely different.
Here at the Online File Taxes, we make it simple for you to file 1099s for contractors, freelancers, and others. Through our online platform, you can quickly fill out the necessary information, check out, and automatically e-file your 1099s with the IRS. Not only that, but your documents will also be saved in a convenient location where you can access the documents at any time. We also handle sending the 1099s to the appropriate contractors to simplify the process even further for you. Before you decide whether or not you should file a 1099 for a contractor, be sure they do in fact fall under this classification. Read on to learn more about the major differences between contractors and employees.
Considering The Control Over The Worker
The first thing to think about when trying to determine if someone is your employee or simply a contractor is how much you control about their work. A contractor is someone who operates independently of your company and is simply hired for a specific task or time period. As such, you do not control the way they do their job. This includes that you cannot control what the worker does and how they perform their tasks.
This is in contrast to an employee who works for you directly and answers to you. With an employee, you can clearly dictate instructions on when, where, and how to work. Other examples that include what is called behavioral control include the following:
- Dictating what type of tools they use
- Giving instructions on specific supplies and services to purchase
- Detailed guidelines on what work must be performed
Depending on the degree of control over these behavioral aspects, a worker will be classified as either a contractor or employee. The more control you retain over someone, the less likely it is that you can classify them as a contractor. Simply put, a contractor has much more independence and operates as if they were their own company outside of your business.
Factoring In The Financials And Benefits
Another determining factor between an employee and a contractor is how the financials are handled. There are numerous facets to what falls under this broad umbrella, but the basic idea is whether or not your business handles most of the costs of equipment and other up front investments or the worker does. If the worker is responsible for using their own tools or puts forth a large investment in equipment without reimbursement from your business, they are most likely a contractor. However, when you have an employee, you will be the one responsible for these costs.
Along the same vein, a contractor is independent which means they can seek out other work as well. While an employee might be contracted to only work for you, a contractor is allowed — in most cases — to continue to advertise, seek out business opportunities, or maintain a visible business location.
Also falling under the umbrella of financials is the way you are paying someone. An employee has a guaranteed wage, whether salary or hourly. They are paid at set intervals and have a constant flow of paychecks. An independent contractor, however, might be paid a flat fee for one project.
Defining The Type Of Relationship
Finally, a large factor in determining whether the worker in question is a contractor or an employee will be found in the type of relationship between them and the business. Do you have a contract that includes employee-type benefits? For example, vacation pay or insurance coverage would be an indicator of an employee status. Conversely, an independent contractor will not receive these types of benefits and there might not be a long-term guarantee of work.
All of the above factors play a role in determining whether or not someone is a contractor or an employee of your company. In some cases, the lines may be fuzzy between the two and it can be hard to determine which is true. In these situations, it is wise to fill out a form with the IRS that helps determine the worker status.
The Importance Of Filing A 1099 For Contractors
If you do determine that someone you worked with over the past year was a contractor, you will need to file a 1099 with the IRS. Because taxation is handled differently depending on whether or not someone is your employee or contractor, it is critical that you figure this out early on. A contractor will be responsible for all their own taxes, whereas with an employee, there will be taxes you are required to pay. By filing the proper forms, you can ensure your company is not amiss during tax season.
The good news is that through Online File Taxes, you can quickly and simply submit any 1099s for contractors that you need. Whether you have one form to fill out or hundreds, our platform is equipped to make the process as simple as possible. You can easily submit all the information needed, without printing off cumbersome amounts of paperwork. Once you check out, your forms will be e-filed with the IRS. We are an IRS approved provider, so you can rest assured that your 1099s will be filed accurately and quickly. Not only will we file your 1099s with the IRS right away, but we will also mail out the 1099s to the respective contractors. This takes away all the hassle for you and ensures that you get everything completed by the January deadline. The best part of all is that our services are affordable. Try our service out today and streamline the process of filing 1099s for contractors.