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Recordkeeping Requirements

Recordkeeping Requirements
for 1099 and W-2 Filing

Before you can complete and file annual 1099s and W-2s for your business, you must gather certain data, including information from contractors and employees. A year-round recordkeeping process will help you stay organized and lead to smoother, more efficient filings.

Here are some of the key pieces of information you’ll need:

First Things First: Your Employer Identification Number (EIN)

Businesses of all sizes require an EIN to file their taxes, even if they don’t have employees or plan to hire. Unlike the tax-exempt code, which is a separate number, the EIN is secured through the IRS when you first establish your business.

You can apply for an EIN online or fill out Form SS-4 and fax or mail it to the IRS; read Where to File Your Taxes (for Form SS-4) for appropriate address or fax number. The EIN application asks basic questions such as your form of business (corporation, LLC, sole proprietorship, etc.), the reason you’re applying for an EIN, your name and Social Security number, and your business’s legal name and address.

Have this information at hand when you start the online application, because if you don’t finish the application in one session, you’ll have to start all over next time.

If you apply online, you’ll get your EIN as soon as your information is verified, and can use it right away to open a business bank account, apply for a business license or file a tax return for your business by mail. (However, you’ll need to wait up to two weeks for your EIN to be entered in the IRS’s permanent records. Once that’s done, you can file an electronic tax return, make an electronic tax payment and pass the IRS Taxpayer Identification Number matching program.) If you apply by mail, you’ll wait at least a week to receive your EIN — longer if there is any missing information on your application.

Taxpayer Identification Number (TIN) for Contractors

1099 reporting for freelancers and contractors requires names, Social Security numbers (SSNs) and individual TINs. You can be penalized for an incorrect or missing TIN, so you should always request a Form W-9 from contractors as soon as you begin discussions about working with them. In fact, you may want to avoid paying for any services until you receive a completed W-9, as this is essential to filing the 1099-MISC form at tax-filing season.

In addition to the individual or company’s name, address and TIN you obtain through the W-9, you’ll want to capture phone numbers, email addresses and a signed contract or agreement for your records. You’ll also need to keep track of all payments to these workers, including the amount and date paid.

Legal Agreement for Contractors

Independent contractors should be required to sign a written agreement indicating that they’re NOT an employee for tax purposes or compliance with other federal and state employment laws. The agreement should also cover:

The services to be provided
The expected results
Deadlines for the work (if applicable)
Terms of payment
Any other conditions regarding the relationship and services being performed

Although an agreement by itself is never enough to make a worker an independent contractor, it will help show the IRS and other agencies that
both you and the worker intended to create an independent contractor
relationship, not an employer/employee relationship.

Even still, remember that an independent contractor agreement is only useful if its terms accurately describe the relationship. To be considered an independent contractor under the law, the worker must be treated like one.

W-4 and other Documentation for Employees

Employees must fill out the Form W-4 so you can withhold the correct federal income tax from their pay. All new hires should receive a W-4 form prior to beginning work, as well as each subsequent year (before January 1) if there are any changes, such as a new address, change in dependents or amount they want withheld from pay. The form captures their full name, their SSN, the number of dependents they wish to claim for withholding purposes and address.

To support your annual filing, you’ll need
to maintain records of all wages paid
to employees — along with documentation
of payroll taxes paid to the government.

Remember: You automatically deduct payroll taxes from an employee’s paycheck, which are then paid to the government. Contractors, on the other hand, are responsible for calculating their own payroll taxes and submitting the amount
to the government on a quarterly basis.


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