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Ask the taxgirl: Responsibility to Ensure Independent Contractor Files?

January 4, 2009 · 3 comments

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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{ 3 comments… read them below or add one }

1 Mary Kay Foss January 5, 2009 at 8:57 pm

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 Kelly January 8, 2009 at 9:26 am

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 January 20, 2009 at 1:26 pm

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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