Q: My father owns a small, incorporated heating and cooling company. Can he pay an employee as a 1099 employee?
If he can, what would his obligations be?
A: The IRS uses three characteristics to determine if an individual is a W2 employee or independent contractor (1099 employee). (1) Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.(2) Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job.(3) Type of Relationship factor relates to how the workers and the business owner perceive their relationship. See IRS Publication 1779. If an employee is an independent contractor, your father has to issue 1099-MISC. However, unlike a W2 employee, your father is not required to withhold taxes (that is the contractor responsibility to send those taxes in).
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