Independent Contractor Pay Question

[Jayded]

Hello,

I am working with a Nonprofit that does business with a few independent contractors. 1 contractor they pay also is the CEO of another contractor, who is a nonprofit, that performs services and gets paid too. Is there an issue with this? Is there a preferred way of doing this? Should the contractor's individual pay be included in the nonprofit's earnings for whom he is the CEO?

Thanks in advance for any assistance given.

 

[ColinCPA]

How is the individual contractor doing business? Is he performing services and invoicing you under his personal name, or the name of the nonprofit? Does he file under an EIN as a sole proprietor or single member LLC? How have you issued the 1099 to him in the past?

Obviously, it's on him to make sure the income isn't taxed twice. But, he could have an independant contractor vs. employee classification issue depending on the nature of the services and depending on how much control he has over the services for which he is paid from you. Since he is an officer and employee of the other nonprofit, if the services are comingled, perhaps there is a risk that he should be treated as an employee and paid via W-2 by his company rather than by 1099 from you.

Anyway, seems more like his and the other company's issue than yours.

 

[Jayded]

The individual contractor operates under a contract. He is paid under his own name and social security number for the individual contract. His company operates under an EIN for the company. The scopes of services provided overlap a bit too and it really feels like double dipping. Is there legal issues or reporting issues that could expose the Nonprofit (the 1 employing the parties involved) to additional risk?

 

[Jayded]

I have not issue him a 1099 in the past. Either entity for that matter.

 

[ColinCPA]

You need to issue a 1099 to both him and the company and file them with the social security administration if the compensation is over $600. The IRS has ramped up enforcement on these forms.

It sounds like his nonprofit should be treating him as an employee, especially as he is an officer of the company. However, there are instances where 1099 treatment is proper, when the services the contractor performs are clearly distinct from the services performed under the direction of the company.

In either event, you should pay as you have done and issue 1099s under both his name and the EIN of his nonprofit. As I mentioned, if he is hammered on the employee issue, that would be more his problem than yours. His services don't appear to constitute an employee relationship with your nonprofit (unless I misunderstood the facts) so the issue is not your company's to resolve.