Just went thru another Minnesota Unemployment audit with a client. Ugh. No one wants to see the audit letter or the auditor. This auditor gave me hope by giving me explanations in plain language on how to treat 1099 independent contractors – no matter what the “contractor” is trying to convince you of. A true 1099 contractor will provide a W9 with their Federal ID tax information and a business name (not just their name and Social Security number).
Armed with the W9 and a business name, you can feel confident…whoops…maybe not. Does this person/business use your place of employment to work, use your equipment, work your specific hours, works under your supervision? Then this is NOT an independent contractor, but an employee and you need to withhold tax and report earnings on a W2 and the end of the year. If this person is an independent contractor, then you will issue a 1099 form and no tax will be deducted from the amount paid.
Hope this helps you make a decision on your contractors and employees. Thanks to the tax man!