Ask the taxgirl: Responsibility to Ensure Independent Contractor Files?

Taxpayer asks:


Aloha

Do I have any liability if I issue a 1099 to a contractor but they fail to report it or file their taxes?

Thanks for your input.

Taxgirl says:

Nope. Your job is done so long as you properly and timely issue the form 1099 to the independent contractor and file the associated paperwork (in most cases, a form 1096).

If the taxpayer fails to file, that’s on him (or her). The same would be true for an employer who issues a form W-2.

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

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Comments

  1. Mary Kay Foss

    Here’s a follow up question. Let’s say that the contractor won’t give you a SSN. If you file the Form 1099 without it, are you liable for back up withholding?

    Would it make a difference if the contractor helped out with your rental property (not always treated as a trade or business) versus your business?

  2. Author
    Kelly

    You can be subject to a penalty for not obtaining a contractor’s taxpayer identification number. The taxpayer may also be subject to backup withholding.

    As to whether there is a difference between the rental property versus business, I’d say no. However, to the extent that the person is an actual employee versus independent contractor, I’d say yes. IMO, you run a greater risk of being cited for noncompliance for an employee (though that’s certainly not always true).

  3. Liz

    That said, if you have misclassified employees as contractors, you could have exposure for risk of a different kind. The IRS or another tax agency might audit the contractor, or the contractor might fill out an SS-8 or an 8919 form to protest their classification, and this might result in a misclassification audit for you. Here is a site that goes over contractor classification and the potential consequences for getting it wrong:
    http://www.mbopartners.com/learning/compliance.html

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