IRS forms needed to hire an independent contractor

If you’re planning a minor home renovation project, like getting new tiles installed for your bathroom floor or replacing your old windows with new energy-efficient ones, it may make more sense for you to hire an independent contractor instead of a general contractor. However, there are certain stringent requirements that have to be met when you hire an independent contractor. This short read will educate you about IRS forms needed to hire an independent contractor.

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Who is an independent contractor?

Independent contractors, or 1099 contractors, are contractors who specialize in one specific function, such as plumbing, or home automation. Independent contractors are small business owners themselves but often liaise with other 1099 contractors to be part of a team for larger projects. For example, it takes up to 22 contractors to construct a new house.

Independent contractors are free to do work for multiple clients at the same time, as long as they can stick to their delivery timelines. They are not contractually bound to only one project at a time.

Benefits of hiring an independent contractor

1. You can hire them for a limited time period to do a specific task, and do not need to employ them on a regular basis.
2. Hiring independent contractors mean you are not liable to pay Medicare taxes, social security taxes, unemployment or workers compensation, or any other benefits.
3. The process of hiring and terminating a working relationship with an independent contractor is a lot easier than it is with full-time employees.

Read more: Vital questions to ask when hiring demolition contractors

What forms are needed to hire an independent contractor?

There are two main forms required when you hire an independent contractor.

Form W-9

The Form W-9 is used to request the name and TIN (Taxpayer Identification Number) of an independent contractor. If the person represents a business, their social security number and employer ID will also need to be declared. It is prudent to keep this form filed for up to four years after your engagement with the contractor ends, should the IRS or the contractor themselves come back with questions.

Form 1099-NEC

This is a new filing form introduced in the 2020 financial year. It replaces Form 1099-MISC which was used for independent contractors. The purpose of this form is to report payments made to an independent contractor during the course of business. This will need to be filed if you pay an independent contractor anything above $600 a year. A copy of the same must be sent to the contractor before January 31 the following year.

Other important documentation and procedures

Contract

Always draw up ironclad written contracts clearly mentioning the scope of work, costs involved, including materials and labor, payment schedules and if applicable, non-disclosure and confidentiality agreements, intellectual property rights, and more.

Invoices

It is always good business sense to keep invoices documenting when you’ve paid your independent contractor and for what, be it the purchase of materials or for services rendered.

Insurance coverage

While hiring an independent contractor, it is always important to make sure that you have all the necessary insurance coverage required before the project begins, such as General Liability Insurance, Performance Bond, Worker’s Compensation Insurance, Disability Insurance, and more.

Read more: Do I need insurance for independent contractors

Paying independent contractors

Depending on the scope of the project, independent contractors may choose to get paid hourly rates, once every fortnight or upon completion of the job. You do not need to withhold taxes, such as income tax, social security tax, Mediclaim, or any other taxes while paying independent contractors like you would if the worker is an employee.

They are responsible for paying their own income tax, and as businesses themselves, for paying self-employment taxes.

Read more: Independent contractors eligible for PPP

Hiring contractors from Kukun

If you’re looking at renovating your home, hiring reliable contractors from Kukun to do the job for you is just a click away. 

We have partnered with over a million contractors who have collectively worked on more than 100 million projects across the country. Our contractors come with experience across the entire gamut of construction: from building a new home to bedroom renovations, ceiling replacements, sunrooms, bathroom renovations, living room, and family room renovations, and a whole lot more.

Contractors are ranked based on reviews from their customers, statistics, work history, and more. Our unique search engine will help you find contractors that have experience working in your neighborhood. For all you know, your neighbors may recommend them to you!

Using Kukun’s Find a Contractor tool will also give you access to your contractor’s licenses and online presence, ensuring you have a hassle-free home improvement experience.

Read more: How to find out if my contractor is licensed

Written by Narayan Shrouthy. October 11, 2021

Narayan is a content writer for Kukun. With experience in both content writing and editing, Narayan mixes his writing and love for reading with his passion for music. As an active musician, He aims to be a key player in Kukun's content experience.