I'm having a major renovation done and am contracting it out myself.
Are the subs more or less on the honor system to report the income derived from my project or should I report via 1099-misc or some other form.? If that's a possibility and I decide to do so, will they all run away, far away.
You give a 1099 form to each sub-contractor, pay them, record what you paid them and they are responsible for paying their own taxes.
Be aware however that the IRS has a test of 20 items to determine if the subs are really independent or not and can make you pay it all anyway plus penalties. You should contact an IRS office and ask them which form documents the procedure to follow.
If the subs are incorporated, you are under no obligation to 1099 them. If they are not, then technically you should issue a 1099. Whether or not you inform them of this at the start of the project is up to you.
Fran
how do you do that without the proper paperwork ? And what if they get hurt on the job while you are paying them ? they can claim to be employees. Collect on your insurance, sue you for workers comp and you may have to finish building a home for them to live in. Maybe there's more to this contractor shit than you think
kickstart
There really isn't that much "official" paperwork. I always make a new sub fill out a simple "Subcontractor Profile" document I came up with. I want his name and dba, his address, his insurance carriers and most of all - his Social Security number. If you have a name, an address and a SS#, or better yet a Federal TaxPayer ID #, all you have to do at the end of the year is total how much you've paid him. If it's over $600. you are obligated to send him a 1099. Once those 1099s hit the mailbox I consider my part of it done - it's up to him from there on. The important thing is - get his information BEFORE you write him any checks. If you don't, he will probably give it to you anyway, but get it beforehand and you're in control of that part at least.
monz
This should all be listed and detailed in the contract for sub-contract labor.
Contract for sub-contract labor? I've been building houses for 32 years - know how many "contracts for sub-contract labor" I've entered into? For framers, roofers, brickies, concrete finishers and misc others - maybe half a dozen. Around here, we hammer out a price and both write it down somewhere. It's done on a handshake. Like I said, if you're worried about 1099s, get his SS#.
monz
Oh sorry. I made the mistake of assuming everyone does things the way we do. We have a sub-contract agreement that requires a COI with certain levels of coverage. We don't hire without Worker Comp. We also issue a work order with a complete scope of work and whatever assumptions the sub has going in. Anything changed by either party goes on a change order.
I'm still learning about all this contractor stuff. But basic business is basic business.
Best, Fran
Congrats Monz! You just wrote yourself a sub-contract agreement! ;)
You can fancy it up with payment terms and what happens if the sub leaves mid-job and all the other scenarios if you want, but basically what you are already doing works just fine as a contract. I would get them to sign and date it though.
Fran
Things are pretty casual around here - not even a contractor's license requirement. It wasn't very long ago that the county first imposed a "contractors listing" program. All it takes is a performance bond. Anyway, thanks for your expertise.
If you hire a sub and you're telling him what to do, how to do it, and when to do it, and if they in any way fall under the umbrella of your insurance coverage, they MAY be considered an employee. Even if he is incorporated.
You need to ask your CPA or post in an appropriate accounting forum where CPAs will answer. Nobody who has responded here is a CPA, and just because they do it a certain way or they've been doing it for xx years means nothing when YOU get audited.
S
I don't know about the regs in your area, but as I understand them here, in Ontario, I am legally responsible for ensuring that subcontractors are covered for insurance, taxes, and so forth. The general rule is to ensure they have a GST (Goods and Services Tax), which they can only get if they are a registered business. If they don't have one, they are not a legitimate business, and you may be held legally responsible for worker's compensation (workplace insurance), and income tax.
If you want to hire someone you can either ensure they are set up as a business, report their earnings, or hope everything will turn out just fine. Which you choose is up to you.
Carolyn
If he/she is a sole proprietorship, get the SSN, otherwise you will be getting a Federal Tax ID Number.
Steve.
Sorry...contract labor (jumped ahead of myself while editing my thoughts and didn't return). Any sub-contract clause would make the contractor liable for any wage issues.
true AND in this case WHO is the contractor ???
kickstart
If they don't know that, they're setting themselves up for a beatin'.
(Small wonder there are so many threads with contractor issues for those who approach the business so "willy-nilly".)
The IRS issue of employees versus contractors came about because of people like me who used to have my own software development corporation. My projects were sometimes very long term, 2 1/2 years in one case. I worked at the customer's offices, according to their hours, needed their permission to take time off, used their equipment, worked as directed by their management. Not really any different from an employee except no benefits and easier to cut loose when the work load eased up.
Someone being GC for one project will be lucky if their contractors return their phone calls, show up when expected and get the job done is a timely manner. Definitely won't be any confusion with the IRS.
Steve.
HomeOwnersHub website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.