When The Shoe is on the Other Foot: Paying Contractors

By 
on April 23, 2012 in Finance
2
0

As a freelance writer, you’re used to getting paid for your work. But as a business owner, you’ll undoubtedly make some payments to your own contractors. Here are a few things to keep in mind as you outsource work to other freelancers and businesses.

Make sure your business can afford the payment

As with all expenses, be sure you have enough money to pay the contractor. One-time projects are a little easier to handle. But, if you’re adding a contractor to your regular payroll, you could run into cash flow problems waiting for your clients to pay you, so you can in turn pay your contractors.

You might start a separate account to use solely for payroll. Whether you use your primary business account or another account, it would be helpful to have a few months of payroll funds in the account to eliminate cash flow problems.

Get the contractor’s taxpayer ID number if you plan to pay more than $600

You’ve probably had clients ask you to complete IRS Form W-9 which is a Request for Taxpayer Identification Number and Certification. The form basically asks for the contractors name, address, type of business, and taxpayer identification number. You’ll need this information to issue a 1099 MISC. Form W-9 has sensitive information, so be sure to keep these documents in a safe and secure place.

The IRS requires you to report payments to nonemployees who work for your freelance business if the payments totaled $600 or more during the year. You'll use the 1099-MISC form to do this. It basically tells the IRS and the contractor how much you paid that person during the year. Generally, you’ll include that amount in the box for nonemployee compensation.

Things get a little tricky if you pay the contractor with a credit card, debit card, Paypal, or another third-party. Because these third-parties are required to report credit card payments to the IRS via 1099-K, you’re not required to send a 1099-MISC form for these types of payments.

Other considerations:

  • You generally don’t have to send a 1099 to a corporation.
  • A different form is used to report compensation paid to a nonresident alien.
  • A tax professional can give you full details on tax reporting and other concerns.

Keep track of what you’ve paid and to whom you’ve paid it.

This can be as simple as writing it down in a notebook or keeping track in a spreadsheet. You can also use payroll software to keep track of this information and to complete your 1099-MISC Forms. Another great reason to keep track of what you’re paying contractors is that you can take a tax deduction for these payments. When you’re dealing with the IRS, accuracy is important. Be sure you record and report the right amounts.

 

Like this? Please share.
TwitterGoogle+FacebookPinterestLinkedInbufferRedditStumbleUponEmail
Short URL: http://3bm.co/I6QYeZ
The following two tabs change content below.
LaToya Irby is a full-time freelance writer and a graduate of the University of Alabama. She primarily writes about personal finance, freelancing, and other self-employment topics.

key to writing success
Your key to a more successful writing career:
Join the FREE All Indie Writers community. Register today for access to the writing forums, and be one of the first to gain access to new e-courses, coming soon!


2 Comments

  1. Allena April 26, 2012 Reply

    If you’re going to use proofreaders, overflow writers, etc on a regular basis, choose to pay them all at once on one day of the month- preferably right after YOU get a regular paycheck.

Add comment

By using this comment form you agree to the site's Comment Policies.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Current day month ye@r *

CommentLuv badge