W-9 independent contractor forms

A W-9 form is a form that businesses and individuals provide to contract and freelance workers. The form has multiple fields in which the freelancer must input their name, date of birth, and taxpayer ID or social security number. Additionally, the contractor must check off a tax classification box to indicate whether they are a sole proprietor or single-member LLC, a C-corporation, or an S-corporation.

Once the document is correctly filled out, it is then signed, dated and submitted to the business or individual requesting the contractor’s services. The document’s signing certifies that the worker is a U.S. citizen or U.S. resident alien and not subject to backup withholding for tax purposes. Once signed and dated, the requester is required to retain a copy of the W-9 in their files and utilize the information provided when tax time comes around.

1099-NEC

Prior to the 2020 tax year, service requesters and employers who hired independent contractors were required to report payments over $600 on a 1099-MISC form in box 7. However, the IRS now requires that any payments made to independent contractors, consultants, contract workers, or freelancers are reported on the 1099-NEC(non-employee compensation) form. All of the information needed to complete the 1099-NEC independent contractor forms can be found on the W9 forms previously filled out by the contractors.

Earnings should be recorded in Box 1 of the form. The payer must also include their payer Federal Tax ID and the recipient’s social security number or Tax ID, along with their mailing address and account numbers when applicable. Once the payer completes the 1099-NEC form, it must be submitted to the contractor or service provider by January 31 of the following year, unless the IRS extends the date. The IRS must receive a copy of the 1099-NEC form from the payer by February 28 of the following year.

Non-disclosure agreements

In certain situations, an employer or service requester may require that an independent contractor signs a non-disclosure agreement prior to starting work. Non-disclosure agreements can vary in wording depending on the specific project or job, but most documents basically state that the worker agrees not to disclose a company or individual’s confidential information to anyone.

A non-disclosure may also clearly state the consequences a contractor may face if they breach the agreement. Confidential information in terms of a business or company typically includes documents, product plans, marketing information, and company employee information, among others. Once a contractor signs and dates a non-disclosure or NDA, they are legally tied to the rules of the agreement.

Client/freelancer contracts

Another important independent contractor form is a client/freelancer contract. Similar to NDAs, certain wording varies greatly based on the task, assignment, or project. However, most freelancer contracts specifically state that the service requester is not responsible for withholding taxes or contributing to benefit plans (including unemployment) and that the arrangement can be terminated if the contractor does not adhere to the terms of the contract.

Contracts and written agreements are essential in the client and independent contractor relationship, as it covers both parties in the event of disputes or disagreements that may arise over the course of the project. For example, if a contract states that a project must be completed by a specified date and the contractor continually asks for extensions, the client has the right to terminate the job per the agreement.

Alternatively, if an independent contractor is asked to perform additional tasks outside the scope of the agreement, they can also terminate the job per the contract. It’s always a good idea for anyone considering hiring a 1099 employee or contractor to consult with an attorney when drafting any type of agreement to ensure the wording is legally sound and that the contract is legally enforceable.

Differences between 1099 workers vs. full-time W2 employees

Understanding the differences between independent contractor/1099 workers and W2 employees is essential for all employers. Misclassification of an employee can lead to fines and penalties from the IRS, wage claims, and monies owed to re-classified employees. Here are the most common differences between 1099 workers and W2 employees to consider during the hiring process:

• Length of employment: W2 full-time employees are generally hired for ongoing work with 40 hour work weeks. Independent contractors are typically brought onto jobs to assist with work overflow, complete one-time, short-term projects, or for jobs that pay per task.
• Scheduling:W2 employees are usually required to follow an hourly schedule such as 9 am to 5 pm, 11 am to 7 pm, etc., while independent contractors can make their own hours and often complete their assignments remotely.
• Taxes:When a W2 employee completes a W4 form at the start of employment, they select tax withholding in order to receive a refund at the end of the tax year. Social Security and Medicare contributions are also withheld, including health insurance payments and bonus withholding (if applicable). 1099 workers are responsible for all of their own taxes, and they must pay self-employment taxes to contribute to Social Security and Medicare.