EIN and SUBCONTRACTORS?

Question

Hi!
I have a sole proprietor LLC. There are no employees. I'll do most of the work with an occasional need for a helper - subcontractor. Do i need a EIN?
How setup taxes for this subcontractor?
Will the EIN influence on my taxes if i will work without subcontractors?

Answer 1

It is easier to treat your help as subcontract. It is not always correct to do so. If they truly are subcontract then the 1099-MISC is the correct form to report payments over $600. You will need the payee's Social Security number for this. If they refuse to give it to you, send them IRS form W-9, Request for Taxpayer Identification Number (see www.irs.gov). If you file 1099-MISC without their SSN, you may be subject to a penalty. If you show that you properly requested it, the penalty is shifted to the payee, and IRS may require future payments be "back-up" withheld at 20%. The link should take you to an IRS guide on determining the proper treatment of the "subcontractor." Note that there are some pretty hefty penalties for mis-classifying an employee as a subcontractor.

Answer 2

If you are simply using the person as a subcontractor, not as an employee, you don't have to withhold taxes. Alot of construction companies operate this way. If you pay a subcontractor over $600, you must issue them a 1099-misc at the end of the year. You would list the money you paid him/her under box 7 - nonemployee compensation. The taxes would then be the subcontractor's responsibility. It's always a smart idea to tell the contractor before they start working that you won't be withholding taxes and they'll have to pay on their tax return. You don't have to get an EIN in order to do this. You can simply use your social security number in place of the EIN. Since you won't be needing much help, it'll be easier to do it this way. Otherwise, you'll be making monthly and/or quarterly deposits and mailing reports every quarter.

Answer 3

I'd get the EIN anyway. Otherwise you'll need to use your SSN for tax purposes related to the business. Not a great idea, that.

Answer 4

the EIN is a good idea if you have an LLC
it cost you nothing,, and if you need to file a 1099 and 1096,, it is good idea then
since you have no partners, you don't have to have the EIN, but if you someday hire part time or full time help, you would need one then.

Answer 5

You have to figure out whether you have an employer/employee relationship with them or not. It doesn't matter how long they work for you.

Employees have the following characteristics, according to the IRS (not all of them need apply):
--regular pay
--no control over how much they're paid
--no control over when they're paid
--regular hours
--no control over their work scheduals
--no freedom to show up whenever they want
--regular written or oral instructions
--performance evaluations
--employee training
--continuous relationship as opposed to sporadic
--lack of control over place of work
--no profit or loss risks
--no business license
--unable to delegate work
--works for only one client

Independent contractors are usually pretty obvious:
--business license
--they set their own fees
--they tell you their payment terms
--they set their own hours
--they hire their own employees if they want to
--seperate office for conducting business
--payment of self-employment tax
--filing of business results for taxes
--freedom to work for many clients
--sporadic relationship ("on call")
--no employee training
--control over quality of work
--control over work techniques

...you get the picture.

Usually, independent contractors will do things for you that you're not in the business to do yourself. For example, if you're a clothing retailer, you're not in business to fix your plumbing. But if you hire an "independent contractor" to sell your clothes, they will have the appearance of an employee.

If you maintain an independent contractor relationship, then there's no limit to how much or how little you use them.

The moment you hire an employee, you have to have an EIN to deduct taxes. (I think you're allowed to hire an employee for up to 72 hours--three days--or less and skip the taxes.)