Tax News

Your resource for small-business tax advice.


Ask The Experts: New Contract Employee Forms

Friday, June 29, 2012

Q: Can you tell me which employment forms a contract employee needs to complete before starting to work for my company?

A: The first question is whether your new worker is an employee or an independent contractor. This is not a matter of choice, but is dictated by the specific circumstances of the working relationship. The key element is who controls the work.


You most likely have an employee if:

  • You tell the person when to be at work, where to work and how to complete the work
  • You provide the workspace and the tools they need to do the job
  • Payments made to employees are called wages. They’re subject to tax withholding and are reported at the end of the year via Form W-2.


You most likely have an independent contractor if you specify the end result, but the worker:

  • Decides how to do the work, when to work and where to work
  • Usually provides his or her own tools to complete the work
  • Has other clients


If you hire an independent contractor, you’ll report payments you make to the contractor on Form 1099-MISC. The form is required if you pay at least $600 to the independent contractor during a calendar year. The payments that are reported via Form 1099 are not subject to federal income tax withholding or other payroll taxes.

You’ll issue one copy of the 1099 to the contractor and send one copy to the IRS at the end of the year.

To complete Form 1099, you’ll need specific information from the contractor. And the easiest way to ensure that the information is accurate is to have the contractor complete Form W-4. The form asks for information such as name, address and tax identification number.

The form is not required and does not get sent to the IRS. But it does make sure that you have the independent contractor’s correct data. And it’s a good idea to get that form in advance of any payments.


Get More Answers

The NASE's small-business experts are here to help you understand the ins and outs of operating a successful small business. And access to these professionals is free with your NASE Membership!

Just go online to the NASE's Business Learning Center where you can ask the experts questions about:

  • Taxes
  • Health care expenses
  • Financial issues
  • Employee relations
  • Accounting rules
  • And much more
The experts are available 24/7 and ready to help!