Tips To Report The IRS While Appointing Freelancers

These days Internal Revenue Service (IRS) is very strict about tax defaulters as well as with those who fake their tax report. They will keep a track even if you are hiring any independent contractor. In that case, you will have to provide some basic paperwork. However, it is pretty tricky to document that you have actually hired an independent contractor as many business owner often try to present their regular employees as independent contractor or freelancers in order to save tax. Whether you are hiring a new engineer as an independent contractor for your heavy engineering firm or a freelance writer for your IT firm, you must ask them to complete the Form W-9 proving their business employer identification numbers, Social Security numbers and contact details.

By hiring individual contractors you don't have to remit any kind of taxes to the IRS on their behalf. This even include taxes like Medicare, Social Security and unemployment tax. All these taxes are paid by the contractors as a part of their own annual taxes. However, you must have a proof. It is these W-9 forms that you will have to submit to the IRS in case they have any question. It is usually a better idea to keep the forms at least for four years. In addition, keep a track of the amount that you are paying these contractors annually. Report this total amount on the 1099-MISC Form at the end of every year. And make sure that a copy of this 1099-MISC Form is send to the IRS by February 28 or March 31 (whichever is applicable) of the following year as well as to the respective contractor by January 31.

This form will also be used by the individual contractors to report the amount that they have earned from your business to the IRS. And the federal tax collecting agency will compare both the reports to verify whether or not they match. In case the amounts mentioned on the 1099-MISC Form fail to match  the IRS will investigate which party has submitted the wrong information regarding their their income or expenditures.

The contractors that you are working with may have their own set of freelancers or employees. And the tax responsibilities for those employees belong to those contractors. However, it is your responsibility to provide documents proving that those contractors you have hired are really contractors and not employees of your organization. And believe me, the IRS is very strict with such documents as many companies have tried to pass off their employees as independent contractors in the past in order to avoid their tax responsibilities. The IRS basically looks into four factors while determining whether or not your workers are really contractors. These factors include the behavior of the worker, his/ her relationship with the organization, the financial terms and finally the duration of the contract.

The independent contractors will usually work according to their own terms. They are free to do their job as they see fit. The organization cannot define the parameters of how they will accomplish the work. However, these contractors do not enjoy any kind of benefits like vacation time, insurance or retirement plan that the employees are entitled to receive. But unlike the employees, the contractors are not bound to use your company tools only. They are free to use any tools that they think essential and will submit the bills for the same after completing the work.