Company vs. Independent Contractor?

[markporter]

I file 1099-MISC for the landowners I pay land rent to.  I also have generally issued a 1099-MISC to anyone who I pay more than $600 for work on my rental properties.  I see that now I need to issue a 1099-NEC to independent contractors that I pay more than $600.  I'm curious:  how do I determine who is an independent contractor and who is working for a company?  For instance:  a fence company, owned by the person performing the work.  My guess is that I need to send them a W9 and then issue a 1099-NEC.  I base this on that they don't list themselves as an LLC or other business type.  Am I doing this correctly?  I assume its better to err on the side of requesting a W9 for anyone performing work for me? 

[M-MTax · Accepted solution]

Better to err on the side of caution so you're doing the right thing.

[macuser_22]

If, in the course of doing business,  your business pays another business more then 600 then the 1099-NEC is required.  It does not matter whether the actual person doing the work is an employee of another business or has their own business (independent contractor).   You give them a W-9 to fill out and return to you that will tell you who to issue the 1099 to and the EIN or SSN of the business.

[Critter-3]

BEFORE you pay anyone a single $  have them fill in the W-9.    You do not need to issue anyone a  1099 if   you pay them by Credit Card  or if  they are incorporated ( not just an LLC). 

[markporter]

Thanks but this seems absolutely crazy.  While I have a very limited number of suppliers, I'm imagining a large business having to do this.  While I understand the IRS tax enforcement side of this, at some point each of us is required to fulfill our own tax reporting obligations.  It is clear that independent contractors not associated with a formal, licensed business are likely an IRS reporting focus, as with other cash-based and sole proprietor businesses.  I guess my takeaway is I need to discuss with a CPA and/or the IRS.

[markporter]

Thanks, but why does paying via credit card as opposed to a check matter?  As far as I'm aware, neither my credit card company nor my credit union does any sort of reporting on my payments to the IRS.  So I'm not really sure what the difference is.  Cash payments I totally get!

[AmeliesUncle]

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@markporter wrote:

  I guess my takeaway is I need to discuss with a CPA and/or the IRS.

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There is really nothing to discuss.  The answers above are correct.

Yes, big businesses need to do this also.  That is part of being a business.  If you pay somebody for services, either an employee or an Independent Contractor, you need to follow the rules and report things if necessary (W-2s for employees, 1099s for Independent Contractors).

Credit cards and certain other electronic payments follow their own reporting rules, and are required to issue 1099-Ks if they pay a certain amount (200 transactions or $20,000).  Because credit cards fall under their own rules, payments by credit cards are exempt from the other rules that you would need to issue a 1099.