If you have subcontractors or helpers, you are required to report the amount you pay them throughout the year, regardless if you pay them by cash, check, Venmo, or other method.
Many small business owners, like landscapers, painters, or roofers, have several helpers who perform services for their company, like cutting grass, moving roofing tiles, painting, or doing clean-up work. These people are usually paid each Friday, normally in cash or by check.
As a business owner, you may think you are doing a 'good thing' by just paying these people 'under the table'. But the reality is that YOU are paying taxes on the amount you pay them. When YOUR returns are filed each year, the amount you pay your subcontractors is a valid business expense, but without proper documentation, it becomes part of YOUR net income, meaning YOU will pay tax on this amount.
- Each subcontractor/helper you use needs to complete a IRS form W-9 before they begin to work for you.
- Each subcontractor/helper you use needs to receive a IRS form 1099-NEC from your compant no later than January 31 each year, for the income received for the prior year.
If you fail to do this, YOU are responsible for the income tax on this amount, AND the IRS can fine you up to $550 per subcontractor or helper!
Just an example: One of our clients is a roofer, who pays over $100,000 to roofers and helpers throughout the year. If he paid them 'under the table', he would be PERSONALLY responsible for over $35,000 in additional taxes each year and fines, and his workers would owe nothing. This is money right out of his pocket!
This is where Hampton Roads Accounting helps YOUR company avoid this liability.
Hampton Roads Accounting will:
- Collect W-9's for each of your subcontractors or helpers.
- Complete and file each 1099-NEC with the IRS.
- Send each person a copy of the 1099-NEC to use to complete their own tax return.
- Submit the required documents with your state tax authority (If required. Not all states require separate tax documents, but many do.)
- Provide you copies of all submitted documents to the IRS and state tax authorities. These are needed by your accountant or tax preparer to ensure your tax liability is reduced.
- If you don't already have a tax preparer, Hampton Roads Accounting can also complete both your business and individual tax returns.
Let's Get Started!
Go to our Appointment Page and select a time for a no-obligation consultation to discuss your needs.