Small Businesses

If your business paid $600 or more during the tax year to an individual or another company for services, then you are required to issue a 1099. Professional fees to an attorney, doctor or other professional are included. Payments to corporations are included only if they are for medical, health care, or legal matters.

Schedule C Properties and rental Activities

Landlords receiving rental income need to issue 1099s for all individuals and businesses (except for corporations) that provided $600 or more in services to the landlord during any one calendar year. For example, a major heating company can repair a heating unit in excess of $600, but sub-contractor "Joe" cannot.

Determining Whether the Individuals Providing Services are Employees or Independent Contractors

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.

Common Law Rules

Facts that provide evidence of the degree of control and independence fall into three categories:

Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?

Financial: Are the business aspects of the worker's job controlled by the payer? These include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.

Type of Relationship: Are there written contracts or employee type benefits like pension plans, insurances, and vacation pay? Will the relationship continue and is the work performed a key aspect of the business?

Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no "magic" or set number of factors that "makes" the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another. The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

If you have any questions about the status of your workers, or to find out what situation would suit your business best, feel free to contact us today.