Subcontractor vs. Employee: How to Determine Who Gets a 1099

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With the end of the year approaching, it is time to think about who you are paying and year end reporting.

Deciding whether a worker is an employee or a subcontractor is largely a question of who determines how the work gets done:

  • If you (the employer) determines – then you probably have an employee. You tell the employee where, when, and how to complete the work.
  • If the worker determines – then you probably have a subcontractor. The contractor completes the project per your specifications, but does so by their schedule, has their own tools, and most likely does the same kind of work for others.Once you decided that you have a subcontractor working for you, how do you determine who needs a 1099? When you hire an individual or business under contract, you should give the contractor a Form W-9. This will provide you with their entity type and other pertinent information. In general, a 1099 should be prepared for any individual or unincorporated business that is paid $600 or more during the calendar year.

Proceed with caution when deciding whether to classify a worker as a subcontractor or an employee. Misclassifying has financial and tax implications for you (penalties for failing to pay employment taxes and/or for failing to file required tax forms).

Please call us at (503) 362-9152 if you need help with this