Working with independent contractors is a great way to take your Kentucky-based small business to the next level without breaking the bank. That said, you have to ensure that you go about reporting contractor earnings correctly and accurately, so you stay in the IRS’s good graces. If you have never hired independent contractors before, you may not know which tax forms to complete and submit. 

Ensure independent contractors are really independent contractors 

Did you just hire an independent contractor or an employee? The difference between the two is a matter of how much sway you have over work performance, when the person works and whether you offer business expense reimbursements. Misclassification and failing to withhold necessary payroll taxes can result in penalties and fines. 

Use the right forms 

So, which forms do you send to the IRS when you work with professionals you know to be actual contractors? Before starting your first project together, have the person fill out a Form W-9, which notes her or his Social Security or taxpayer identification number. If you pay a contractor at least $600 in a single tax year, you need to file a Form 1099-MISC with the IRS and send a copy to the contractor before January 31st. 

If you file a 1099-MISC form, you also need to complete a 1096 form. This document summarizes all your informational returns for the tax year. Be sure you send this form along with your other informational returns. Note that you only have to send a 1096 form to the IRS, not the contractor. 

This information is only intended to educate and should not be interpreted as legal advice.