Q: How Do I Pay a 1099 Independent Contractor?

So you want to hire an independent contractor? When it comes to payroll, that classification refers to a type of temporary worker you hire at your business.

Not sure if you are hiring a contractor or employee? Check the IRS regulations first. Once you are sure you are bringing on a contractor, follow the steps below.

1. Have your contractor fill out a Form W-9

This will provide you with all their identifying info. Make sure to keep the Form W-9 in your records for at least four years, and pay close attention to whether the independent contractor is subject to backup withholding or not (line 2 under Part II). If the contractor does not supply you with a valid taxpayer identification number (TIN) in Part I, then you will be required to deduct backup withholding from their earnings. Failure to pay backup withholding can leave you responsible for any uncollected tax liability, so it’s important to get it right.

2. Get them the money

When you’re paying independent contractors, you generally don’t take taxes out before you give them the money.

Some employers choose to write their contractors checks, while others get permission to pay their contractors via direct deposit (note: authorization forms are required!), and some use websites like PayPal to electronically transfer the funds. Many payroll providers can also process these payments as a convenience, as long as you are already using them to pay your employees.

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3. Pay any backup withholding that you withheld to the IRS

If there were backup withholdings with your contractor, get that money to the IRS. And make sure to get any state taxes that were withheld to the appropriate state taxing authority, too. 

4. Fill out a 1099-MISC

If you pay an independent contractor more than $600 in the year, then this is required. You must also file Form 1099-MISC for each independent contractor from whom you have withheld any federal income tax (and report the backup withholding amount in Box 4 of the 1099-MISC).

You will need to provide a copy to your contractor by January 31, and generally must send a copy to the IRS and the state income tax withholding agency by January 31 to stay compliant.

Comments

  • Upplady

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

    Reply
    • Gusto Editors

      Hi there! Generally, an independent contractor is a worker for whom “the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.” In other words, when you hire a contractor you can only control the outcome or deliverable—not how the work is performed.You can learn more in our article here: https://gusto.com/blog/hiring/hire-employee-or-independent-contractor

      Reply
  • Antwan Keenan

    Does Gusto provide 1099 Dividend form? How do you set up dividend payments for C Corp owners in payroll?

    Reply
    • Gusto Editors

      Hi Antwan — for 1099s, we file the 1099-misc, not a dividend one. With the dividend payments, we need to know how they are supposed to be taxed/reported and then we can let you know how to set it up. Once you have that information, you can contact us and we can support you.

      Reply

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