Freelance tax legal questions?

Question

Im looking to give out alot of freelance work soon. How exactlly does it work if im ready to pay them and its over $600. Do i tell them to get a W-9 form and send it to me. And then do i pay them once i get the W-9 form regardless of knowing if they put the wrong Tax id number on it. And then i send the 1099 misc form to the government. correct?

But what happens if they entered the wrong tax number.Does the goverment go back to me or to the payee.

Answer 1

Before you pay them a dime, give them a Form W-9 and have them complete it.  While you are not required to do so, it's not unreasonable to ask for proof of ID and SSN; I always do.  You are required to cut 1099s if you pay them $600 or more in any calendar year; you may cut them for less if you wish, that's optional with you.  

If anyone fails or refuses to give you a properly executed W-9, you are required to withhold tax at 28%.  Withholding the tax gets you off the hook for the IRS penalty for not reporting their name, SSN, etc.  However you must still prepare the 1099s with whatever information you have.  An incomplete 1099 automatically triggers the 28% tax withholding, so make SURE that you collected it!  (Personally, I don't pay until I have a W-9 in hand.  Nobody has ever held out more than a couple of weeks faced with not getting paid and since it's not a wage issue, your State's Wage & Hour folks won't get involved.)

If they give you bogus information despite a good faith effort on your part to ensure the information is correct, then it's on them not you.

Answer 2

You get the w-9s and give them to your sub contractors. You should not have them work for you before you get their information.

By signing the w-9 forms, your subcontractors are certifying that the information is correct under penalty of perjury. You have no liability if it is incorrect unless you put the wrong number on the 1099.

You should also check with the state you work in. Some states (Massachusetts is one) have requirements for reporting to state authorities when subcontractors are used in their states. Massachusetts requires that subcontractors be reported to the state so that child support and other garnishments can be taken out.