Question

April is an independent contractor paid a total of $3,000 for 2016. What actions should you take to report April’s income? Do you need to complete forms for both April and government agencies? Are you required to withhold income tax for April? What if April received $500 instead of $3,000? Would you still report her income?

Answer 1

As per Federal law, if you have made the determination that the person you are paying is an independent contractor, the first step is to have the contractor complete Form W-9, Request for Taxpayer Identification Number and Certification. This form can be used to request the correct name and Taxpayer Identification Number, or TIN, of the worker. A TIN may be either a Social Security Number (SSN), or an Employer Identification Number (EIN). The W-9 should be kept in your files for four years for future reference in case of any questions from the worker or the IRS.

Form 1099-MISC is most commonly used by payers to report payments made in the course of a trade or business to others for services.

If you paid someone who is not your employee, such as a subcontractor, attorney or accountant $600 or more for services provided during the year, a Form 1099-MISC needs to be completed, and a copy of 1099-MISC must be provided to the independent contractor and send a copy of this form to the IRS by January 31 of the year following payment.

In the $3,000 scenario,

We have to collect the W-9 from April.File the 1099-MISC with the IRS and send a copy to the april by January 31 of the year following payment.

In the $500 scenario,

We have to collect the W-9 from April and no need to file 1099-MISC.