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April, 2009

INDEPENDENT CONTRACTORS

In this Issue:

    IMPORTANT TAX INFORMATION CONCERNING INDEPENDENT CONTRACTORS
    RESOURCES FOR BUSINESSES AND INDEPENDENT CONTRACTORS

IMPORTANT TAX INFORMATION CONCERNING INDEPENDENT CONTRACTORS


Under some circumstances, using the services of independent contractors is a smart business choice. However, both independent contractors and those who use their services need to make certain they follow IRS guidelines in order to avoid substantial penalties.

The huge jump in businesses hiring of independent contractors has caused the IRS to implement more stringent guidelines to screen for correct worker classification. The IRS takes an unsympathetic view of businesses that misclassify their employees as independent contractors to avoid payroll taxes and to avoid the cost of employee benefits. Penalties for misclassification are heavy.
Independent contractors and self-employed individuals have also received stepped-up scrutiny by the IRS and licensing bureaus. Any self-employment resulting in $400 of income or more must be reported for tax purposes. The company for whom the IC provides services will issue a 1099-MISC instead of a W2. All quarterly estimated tax payments External link opens in a new window are the responsibility of the independent contractor unless satisfied through other wage withholdings. the responsibility of the independent contractor unless satisfied through other wage withholdings.

RESOURCES FOR BUSINESSES AND INDEPENDENT CONTRACTORS


IRS Guidelines

  • IRS guide External link opens in a new window for employee or independent contractor determination.

Information for Small Businesses Using Independent Contractor Services

  • Webtax.com External link opens in a new window discusses the difference between independent contractors and employees.

  • BizAmmo.com External link opens in a new window provides the pros and cons of using independent contractors.

  • About.com External link opens in a new window discussion on merits of using independent contractors.

  • 2008 Employee Classification Act for the Construction Industry provided by IDOL External link opens in a new window.

Information for Independent Contractors

  • Independent contractor requirements provided by Nolo External link opens in a new window.

  • How to estimate self-employment tax at About.com External link opens in a new window.

  • Independent contractor status article by Stephen Fishman of Nolo External link opens in a new window.




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