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How do you handle your 1099 contractors?
The IRS has very definitive rules for what constitutes a W-2 employee. Essentially if you are telling someone where to be and what to do - that is an employee. This issue is all about payroll taxes, either employee 941 payments or independent contractor self employment quarterly payments. Unpaid payroll taxes is a direct liability to the company owner - even a Chapter 7 liquidation bankruptcy will not alter the personal liability of the owner.
To what extent do you insure that your 1099 independent contractors are paying their required estimated income taxes?
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1 Answer
(Disclosure: I am a contractor.)
Other than maybe finding out if they are under investigation for tax evasion, you can't ensure that. Those taxes are the responsibility of the contractor. The short answer to "how to handle" 1099 contractors is professionally. Treat them like you would treat another larger company or vendor, because in effect, contractors are small companies. The key word is "contract" in contractor. If that is well thought-out and covers all the bases, then you will more than likely have an easy relationship with your contractor. If things like scope of work (that's a biggie for me, sometimes moreso than money), fee, timelines, roles, responsibilities, deliverables, etc. are all outlined in detail, then all the contractor has to do is concentrate on getting the job done that you hired him/her to do.
If there are questions there that are not answered by the contractor's client, then the contractor will go into self-protection mode. Just like you have interests to protect, so does the contractor. In my case, it's feeding my family and paying my bills. If I get any vibe that I'm on shaky ground, I'll either take the job, but cover my own ass to the best of my ability which may make you not on my list of top priorities(you may not be my only client... one of the significant differences between contractor and employee), or I just won't take the job and move on to greener pastures. Make sure you know what determines an employee vs. a contractor with regard to the IRS... especially if an employees transitions to contractor status. Rest assured the contractor does.
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