Are you hiring or contemplating hiring contractors for your business? Did you hire contractors early in the year? Here is some key info you should know. If you get stuck on any of the steps below, reach out to us at [email protected] 😉
Should I classify my new hire as an Employee or Contractor?
Check out these guides on hiring an employee vs. contractor
What forms do I need when hiring an Independent Contractor?
When hiring an independent contractor, you must concern yourself with two tax forms in particular: Form W-9 and Form 1099.
What are W-9 and 1099-NEC tax forms?
IRS Form W-9 is a form you send out to the independent contractor to be filled out prior to them providing any services. It tells you the legal name, address, and taxpayer identification number (TIN) or Social Security number (SSN) of the independent contractor.
IRS Form 1099-NEC reports the income a business pays to independent contractors. Businesses must provide a 1099-NEC to each contractor who is paid $600 or more in a calendar year. You must file Form 1099 with the IRS and your state tax authorities by January 31 of the following tax year.
What should I use to pay an independent contractor?
We recommend you pay contractors via Gusto since it will make the annual 1099 process so simple. For a fee of only $6/contractor/month, Gusto will send the W-9 (IRS form to request info from independent contractors) and file the required 10990-NEC forms to federal and state agencies for you at the end of the year.
Check out this article for instructions on how to add contractors to Gusto.
Alternatively, you can pay them through third-party settlement organizations (TPSOs). Some networks also take care of issuing 1099s for you. But for those that do not, you will have to issue 1099 on your own. That's why it is such a great idea to set up and pay your contractors in Gusto.
Examples of TPSOs that issue 1099s include, but are not limited to:
Examples of TPSOs that do not issue 1099s include, but are not limited to:
How do I set up my contractors in Gusto?
To add a domestic contractor in Gusto follow the steps below:
Go to the People section and select Team members.
Click Add a team member.
In the Contractor tile, click Add.
Select if this is an Individual or Business contractor type.
Enter the contractor's details such as name and start date.
If you elected Individual as the contractor type, you may be asked to answer additional questions about new hire reporting and their primary work state.
Select their wage type–hourly rate or fixed dollar amount.
Enter your contractor's personal email. Use an existing address that’s not associated with your company.
This allows them to view their payments and download their annual 1099 tax form.
At the bottom, select the checkbox to invite this contractor to enter their own details in Gusto.
If you wish to enter all of their information yourself, uncheck that box. Proceed with entering their SSN/EIN, address, and payment info directly as it was provided to you on the W-9.
Click Select documents.
Select the onboarding documents you need the contractor to sign or acknowledge. Choose from:
Individual documents: something for a single recipient, like a contract agreement.
Team documents: something applicable to many recipients, like required training.
Gusto will also automatically send a W9 to your contractor to complete electronically.
If they have trouble completing this form, you can direct them to this article.
Click Add contractor.
If you did not choose to have the contractor self-onboard, enter their payment details.
Click Save and continue.
Your contractor will receive an email requesting them to add their SSN/TIN (for an individual) or EIN (for a business), home address, and payment information for a direct deposit or check. Once completed, you'll be notified and can start paying them through Gusto.
How are my contributions going to be recorded in QuickBooks?
Payments to your contractors are automatically synced to Quickbooks. Once Contractors are set up in Gusto, go to Settings > Integration and map in Quickbooks.
When the information syncs to Quickbooks, you will simply Match the payments
Not sure how to do this? Reach out to your Collective team.
What if there are contributions that were not tracked?
First, add the domestic contractor in Gusto, then follow the steps below—if the contractor has been dismissed you'll need to rehire them first. The payment(s) will be added for reporting purposes only.
Click the Payroll section and select Pay contractors.
Click the pay date and select the actual date you paid your contractor–a message prompting you to further indicate this is a "historical payment" will appear.
If you're adding a payment for a previous year and a Form 1099 has already been filed (or the deadline for changes has passed), you'll need to generate a corrected Form 1099-NEC.
Next to the contractor's name, under the "Total amount" column, click Enter Payment.
Under the "Payment method" column, the default payment method for that contractor will appear—click that payment method (typically Check or Direct Deposit) until it updates to Historical Payment.
Enter the number of worked hours, wages, or other additional earnings that were paid.
Click Memo to leave a small message and let your contractor(s) know what the specific payment is for.
Review the summary and click Submit payments if everything looks right.
Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining accounting or other financial advice from an appropriate financial adviser or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.