Limited Energy 1099 Question

[Saltine]

I'm new here and have done some searching already trying to find this question answered, but haven't had any luck.

In order for a 1099 to work on a job do they need to be licensed, even if the company who has hired their services is licensed, pulled the permit, oversees the project, provides liability and workers comp for the job? (Company has no control over hours, tools, etc.)

I'm about 90% sure the answer is no, but I'm reading conflicting things online such as you can cover 1099's with liability/workers comp insurance etc, and some guy pleading his case down in South FL that he was doing work as an independent contractor under the companies license?

Thanks!

 

[petersonra]

You can do whatever you want but most of the time when people are being paid and the income reported on a 1099 versus a W2, it is not legit. People get away with it, but it is rarely if ever legit.

JMNSHO.

 

[Saltine]

What falls under rarely? I think that's why I'm confused, in some instances it's allowed? What are those, if anyone actually knows?

Thanks again!

 

[petersonra]

What falls under rarely? I think that's why I'm confused, in some instances it's allowed? What are those, if anyone actually knows?

Thanks again!

There is a difference between what is done, sometimes commonly, and what is legally allowable, even if people get away with a lot that is of dubious legality in this area.

My guess would be that the vast majority of people being paid on a 1099 should be getting a w2 instead.

If someone is a legitimate contractor there is no need to pay on a 1099.

Is it even legal for you to provide WC coverage to someone who is not an employee as you suggested was being done in your OP?

 

[curt swartz]

There is a difference between what is done, sometimes commonly, and what is legally allowable, even if people get away with a lot that is of dubious legality in this area.


If someone is a legitimate contractor there is no need to pay on a 1099.

Huh?? If you are subbing work out to a legitimate contractor that exactly what a 1099 is for. I notifies the IRS that you paid $X to a another contractor.

 

[petersonra]

Huh?? If you are subbing work out to a legitimate contractor that exactly what a 1099 is for. I notifies the IRS that you paid $X to a another contractor.

if it is a legit business no 1099 is required. it is only required to pay someone who is not doing business thru a business type entity.

if you hire a roofing contractor to roof your house and he is (for instance) an LLC, you just write a check to the business. No 1099 required. If he is your neighbor and you are paying him individually and not as a business entity a 1099 would be required.

 

[hbiss]

Do a Google search for 1099 vs W2 and read the IRS explanation. Generally, an independent contractor has his a legal business set up, own vehicle, own tools, own office, maintains his own schedule and works for other people. So I would say yes, that in this industry you need your own license.

I don't know who you are talking about (yourself, someone else, you as an employer) but from what you are saying this is clearly a W2 employment.

Huh?? If you are subbing work out to a legitimate contractor that exactly what a 1099 is for. I notifies the IRS that you paid $X to a another contractor.

If it is a legit business no 1099 is required. it is only required to pay someone who is not doing business thru a business type entity.

if you hire a roofing contractor to roof your house and he is (for instance) an LLC, you just write a check to the business. No 1099 required. If he is your neighbor and you are paying him individually and not as a business entity a 1099 would be required.

Not exactly. As a business, if you do business with a corporation or LLC there is no need to send them a 1099. But if you do business with a sole proprietor then you must send them and the IRS a 1099 at the end of any year that you paid them $500 or more. Before doing business with any company you are supposed to give them an IRS form (I forgot which one) on which they state their business makeup as well as their TIN or SS number. You keep that form on file.

-Hal

 

[K8MHZ]

if it is a legit business no 1099 is required. it is only required to pay someone who is not doing business thru a business type entity.

if you hire a roofing contractor to roof your house and he is (for instance) an LLC, you just write a check to the business. No 1099 required. If he is your neighbor and you are paying him individually and not as a business entity a 1099 would be required.

Not according to this:

When Form 1099-MISC must be filed
The basic rule is that you must file a 1099-MISC whenever you pay an unincorporated independent contractor — that is, an independent contractor who is a sole proprietor or member of a partnership or LLC — $600 or more in a year for work done in the course of your trade or business.
If you’re a broker who employs independent contractor agents, you need to file 1099s for them, as well as any other contractor you paid at least $600 during 2012.
Remember, however, that a 1099-MISC need be filed only when an independent contractor’s services are performed in the course of your trade or business. A trade or business is an activity carried on for gain or profit.
You don’t have to file a 1099-MISC for payments for non-business related services. This includes payments you make to independent contractors for personal or household service — for example, payments to babysitters, gardeners and housekeepers. Running your home is not a profit-making activity.
Example: Eddy owns several homes he rents out to tenants. He is in the business of renting houses. Eddy pays Linda, who operates a painting business as a sole proprietor, $1,750 to paint one of his rental houses. Eddy must report the $1,750 payment to Linda on Form 1099-MISC.
Example: Eddy pays Linda $1,750 to paint his own home. He lives in this home with his wife and family and it is not a part of his home rental business. Eddy need not report this payment on Form 1099-MISC because this work was not done in the course of his business.
In addition, some business-related payments do not have to be reported on Form 1099-MISC, although they may be taxable to the recipient. These include

• 
  [*=left]payments to corporations (except for incorporated lawyers)
  [*=left]payments for merchandise, telephone, freight, storage, and similar items, and
  [*=left]payments of rent to real estate agents (but the real estate agent must use Form 1099-MISC to report the rent paid over to the property owner).

http://www.inman.com/2013/01/25/when-and-when-not-file-form-1099-misc/​

 

[Saltine]

Couple things.

Yes the 1099 falls under 1099 status, this describes them perfectly (Generally, an independent contractor has his a legal business set up, own vehicle, own tools, own office, maintains his own schedule and works for other people.).

They also have their own LLC's which is what the 1099 is made out to.

Something I learned in the Mike Holt class was that they couldn't be covered under another workers comp/liability, but it seems that it's definitely possible, and I don't understand why an insurance company would do that if it's illegal/invalid...

Thanks again!

 

[growler]

I'm new here and have done some searching already trying to find this question answered, but haven't had any luck.

In order for a 1099 to work on a job do they need to be licensed, even if the company who has hired their services is licensed, pulled the permit, oversees the project, provides liability and workers comp for the job? (Company has no control over hours, tools, etc.)

I'm about 90% sure the answer is no, but I'm reading conflicting things online such as you can cover 1099's with liability/workers comp insurance etc, and some guy pleading his case down in South FL that he was doing work as an independent contractor under the companies license?

Thanks!

This is not as simple as it sounds. You ask, can one company cover another for workman's comp? If you are the prime contractor and you sub out work then the sub must provide workman's comp insurance or you will end up paying for it.

A 1099 form doesn't have anything to do with being licensed. The IRS doesn't care how you make money but if you do make any they want their share.

Can a licensed profession sub out to an unlicensed sub? That's up to the state authorities to decide.

 

[growler]

Before doing business with any company you are supposed to give them an IRS form (I forgot which one) on which they state their business makeup as well as their TIN or SS number. You keep that form on file.

-Hal

The form you speak of is the Form W-9. You can download a new version that will allow you to fill out all the information other than signature with your computer.

Even when you file the form as a corporation lots of companies will send out a form 1099 just to cover themselves. It doesn't hurt anything ( so long as your books match ).

 

[Saltine]

Thanks for the help, this is great info.

 

[electrofelon]

A 1099 form doesn't have anything to do with being licensed.

Right. In Central NY here, there is no licensing. It really comes down to if you are under the direction of someone else for your task, schedule, etc. The IRS explanation suggested reading in post #7 says something like that. Now that being said, having one's own business, license, tools, and insurance does it make it highly unlikely that the IRS would give it a second look to a 1099 issuance as fraudulent.

Workers comp is weird. I dont understand it, but an LLC I did sub work for, said they had to pay workers comp for me. I am an LLC and do not have workers comp.

 

[growler]

Workers comp is weird. I dont understand it, but an LLC I did sub work for, said they had to pay workers comp for me. I am an LLC and do not have workers comp.

Workman's Comp is a percentage of payroll. To figure out how much you owe the insurance carrier you have to fill out a payroll audit. This covers all W-2 employees. But you also have to account for money paid to any sub-contractors. If they have workman's comp and you have the correct information on file then you are covered but if not then this is also labor that must be accounted for and paid for.

 

[kwired]

This is not as simple as it sounds. You ask, can one company cover another for workman's comp? If you are the prime contractor and you sub out work then the sub must provide workman's comp insurance or you will end up paying for it.

A 1099 form doesn't have anything to do with being licensed. The IRS doesn't care how you make money but if you do make any they want their share.

Can a licensed profession sub out to an unlicensed sub? That's up to the state authorities to decide.

Exactly, the IRS doesn't enforce licensing of trades and professions, it only cares about reporting and payments of taxable income. For the most part you only need to give a 1099 to individuals (sole proprietor type organizations), but you can issue one to every business you made payments of over $600 to if you wish. As mentioned earlier this would also only apply to any payment you want to use as a business expense. Paying the painter for painting the rental house vs painting owners personal house was a good example of that.

Workman's Comp is a percentage of payroll. To figure out how much you owe the insurance carrier you have to fill out a payroll audit. This covers all W-2 employees. But you also have to account for money paid to any sub-contractors. If they have workman's comp and you have the correct information on file then you are covered but if not then this is also labor that must be accounted for and paid for.

Gets kind of tricky at times but in general if it involved contracted labor, then the sub needs their own WC policy or other proof of their own liability, or the entity that hires them must cover them with their own WC policy. During annual auditing they do ask if there were any subcontractors and for proof of WC policies on those subs, if they don't have them, then your audited premium likely increases to cover them.

If the person involved needs to be licensed to perform their job, that is possibly taken into consideration by WC policies, but is more of an issue with whoever governs the license required then it is for anyone else. Some AHJ's monitor insurance more then others. Here the state electrical AHJ only has a minimum general liability requirement for EC's, and that is not just to be a license holder, but if you file any permits you need to have a valid insurance certificate on file or you won't get the permit. Non licensed people on a job or not properly supervised apprentices can be asked to leave, but AHJ doesn't care about WC insurance or 1099's.

 

[electrofelon]

During annual auditing they do ask if there were any subcontractors and for proof of WC policies on those subs, if they don't have them, then your audited premium likely increases to cover them.

That is what seems odd to me: I dont need WC in general as an LLC, but when being subcontracted, I do (or the GC needs to pay for it).

 

[kwired]

That is what seems odd to me: I dont need WC in general as an LLC, but when being subcontracted, I do (or the GC needs to pay for it).

It is messed up. I do have a WC policy. It only covers employees and not myself. I don't have any employees right now, and haven't for some time now, but may again sometime. I still have WC certificates sent to those that want them, and they never question a thing, though if I am the only person on the job from my company and would be injured, I am not covered by the policy:roll:

 

[K8MHZ]

It is messed up. I do have a WC policy. It only covers employees and not myself. I don't have any employees right now, and haven't for some time now, but may again sometime. I still have WC certificates sent to those that want them, and they never question a thing, though if I am the only person on the job from my company and would be injured, I am not covered by the policy:roll:

That's probably why some of the one man shows are actually owned by the wife, and the electrician works for the company owned by the wife and can be covered by WC.

 

[growler]

That's probably why some of the one man shows are actually owned by the wife, and the electrician works for the company owned by the wife and can be covered by WC.

And that's probably why the guy has to work for minimum wage. :?

More than one way to skin a cat. :happyyes: