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Thread: Independent Contractors question

  1. #1
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    Default Independent Contractors question

    Hi,

    Is my company responsible for verifying the legal status of an independent contractor regarding work permit or green card?
    What if I hire a freelance programmer or a sales rep that is not legally authorized to work because he has just a valid visa or a parole?

    I'm not thinking in hire any employee so far but I might use some people as independent contractors and I would like to know what I have to be aware of.

    I the case of sales reps and freelance programmers...should I make them sign any tax form(W9...etc) when hiring their services as independent contractors?...or just issue them a check at the end of the work?

    any help is appreciated.

  2. #2

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    If the people you hire are clearly independent contractors under the IRS rules, then you do not need to get a W-4 or withhold taxes, but I would strongly recommend that you get a W-9 since unless you absolutely know that the amount that you will pay the independent contractor will be under the minimum amounts for required reporting to the IRS.

    As for other forms, be careful of the I-9 reporting requirements. While you do not need to (and in fact cannot) require verification for independent contractors, the I-9 definition of employee is different than the IRS definition.

    In addition, a company may not use contracted workers to knowingly obtain the services of unauthorized aliens. Knowledge may include not only actual knowledge but also what is called "constructive knowledge" where a reasonable person would have known that the contractors were unauthorized aliens. In other words, you cannot intentionally ignore red flags and say "I didn't know!"

    Hope this helps a little...

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    First you should read and determine your "risk" in hiring an independent contractor. See the IRS article Independent Contractor (Self-Employed) or Employee? .

    If you are hiring an individual verses a corporation I would suggest that you follow the IRS publication that says:

    Publication 15, Page 4 -
    >>Hiring New Employees:
    You must verify that each new employee is legally eligible to work in the United States. This will include completing the U.S. Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. You can get the form from USCIS offices or by calling 1-800-870-3676. Contact the USCIS at 1-800-375-5283, or visit the USCIS website at http://www.uscis.gov/files/form/I-9.pdf for further information.
    <<
    Last edited by OldJack; 12-03-2008 at 11:35 AM.

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    Wow guys...you are awesome!

    B. Attorney, thank you very much for your post. Tt helped A LOT.

    OldJack, by coincidence I was reading yesterday after posting my question that link you sent me form IRS. It is very clear regarding the forms I have to fill for either an Employee or an Independent Contractor.

    I have another question though. In the IRS document says that you have to file a 1099 to any independent contractor(even lawyers and accountants) that you paid more than $600 in that year. So....is a plumber/electrician (individual or company) that makes a job for me for more than $600 an independent contractor of mine?...should I issue a 1099 for all of them?
    I checked this link Independent Contractor but it wasn't clear for me.

    In the other hand, if I outsource some parts of a website or a whole website to another company...do I need to consider them an independent contractor as well and issue them another 1099?

    1000 Thanks folks, I apologize if some of my questions are too silly but I'm just starting in the business world and I want to do things in the right way.

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    >>questions are too silly <<

    Such questions are never considered silly!

    First let me state that for 1099-Misc reporting requirements it is $600 or more and not more than $600. So if you paid exactly $600 you would have to file the form.

    The requirement of filing form 1099-Misc is for a "business" making payments and not for an individual (not in business) making payments. And, (with certain corporation required to be reported) it is for business payments to anyone other than a corporation.

    So if the plumber/electrician is not a corporation and does work for your business you must file form 1099-Misc for services of $600 or more paid during the calendar year. Outsourcing is no different, if the outsourced entity is not a corporation you must report on form 1099-Misc. All 1099's are summarized on and mailed with form 1096 after year end.

    If the plumber/electrician is doing work for you personally, such as on your personal residence, paid by you as not business related, then you as an individual do not report on form 1099 regardless of how much you paid the plumber/electrician.

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    Oldjack...thank you very much one more time!

    I have it very clear now for individuals....and almost clear for corporations. As I understand from your post is that if I outsource some work to another corporation I just write them a check and that's it...is this correct?.It will work as an expense for the company for tax return purposes but I don't need fill any other form or report anything else....right?

    I have some other questions about whether to charge taxes or not for services...but I will open another thread for that.

    Thanks everyone again

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    >>corporation I just write them a check and that's it...is this correct?.<<

    Correct... other than certain corporations such as medical doctors corporations and other professional corporations that you have read about in the IRS publications.

  8. #8
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    Quote Originally Posted by ahl View Post
    I have some other questions about whether to charge taxes or not for services.
    That depends on your state law. Most states do not charge sales tax on services, so you do not need to register for that aspect. But you'll need to read up on your state law on this. You can usually find this information from your state's Department of Revenue or Taxation.
    Small Business CPA
    "A tax loophole is something that benefits the other guy. If it benefits you, it's tax reform."

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