If you’re dealing with contract labor, you will be responsible for compliance with IRS 10-99s.
Form 1099-MISC is required by the IRS if you are paying someone more than $600 that is not your employee and who is considered an independent contractor. Each individual that you are paying should receive a 10-99.
Who should get a 10-99?
Individuals such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, in which they offer their services are generally independent contractors according to the IRS.
Who doesn’t need a 10-99?
Generally, payments to a corporation (including a limited liability company (LLC) that is treated as a C- or S-Corporation do not require a 10-99 to be issue. Also, payments for merchandise, freight, storage, and similar items don’t require a 10-99. So if you’re selling product (i.e. a grower sells marijuana to a processor or wholesaler) you are not required to get a 10-99. Note: Payments to attorneys (even if they are considered a corporation, require a 10-99)
What’s the difference between a 10-99 and a W-9?
A W-9 and 10-99 go hand in hand. Imagine your business is hiring Joe, an independent, self-employed accountant for consulting work for the month; you’ll need to request he fill out a W-9 and provide him a 10-99 after you’ve paid him.
A W-9 is an informational return there you validate an individual/entities tax identification number (TIN) and payee’s correct name. You’ll use the W-9 to validate Joe’s name, TIN, and other required information. I recommend filing a W-9 for all vendors or suppliers you work with. This shows that you are performing a due-diligence on the businesses you work with.
A 10-99 MISC will be used to report the total amount you paid to Joe. You are also required to give him a copy of the 10-99. You will include his TIN, amount paid, and other requirement information. Joe will use this to file his personal taxes.
It’s important that you hone a strategy to navigate compliance around 10-99s both from a substance and form perspective. For individuals that are clearly identified as independent contractors, you’ll want to ensure that you are filing 10-99s. However, what about the contracts that could be considered “employees?”
The IRS does not joke around about the treatment of employees. If the IRS considers that your independent contractor is actually an employee, your business could owe back tax and face severe penalties.