August 25, 2022
Reimbursing A Contractor
By now you know who should receive a 1099 and who should receive a W-2. You are also pros at knowing what paperwork each should fill out, and what happens at year-end for each type of person. So, we won’t discuss those details here. If you are still a little unsure though, start here.
But we do get requests about reimbursing a contractor for their expenses. Your contract worker, who already filled out a W-9 Form, and will be receiving a Form 1099 at the end of the year.
Regarding the contractor’s request for reimbursement, we would like to set the record straight, once and for all.
What is an Employee
Let’s back up a little first. An employee can be reimbursed for their organization related purchases. They are getting paid for their work for the company. They are not setting their own hours or sending someone else to do their job. But they receive a paycheck for the actual work that they do. They also receive company benefits.
You might also like: Commonly Misclassified Workers
What is a Contractor
A contractor is providing a service for you – and other companies or individuals. They could send someone else in their place to complete the proposed project. They don’t have a workspace in your physical space; and these companies, or individuals, provide their own worker’s comp and liability insurance, not you.
Want to hear straight from the IRS? View their page on Independent Contractors. Where they talk about the differences between contractors and employees, and what can happen if you misclassify a person.
Can You Reimburse A Contractor?
With those things in mind, let’s get back to our main point: no reimbursements for contractors. Contractors are setting their hours and their own pay. They are providing and writing their contract. You are paying for their work.
All of the contractor’s expenses to do their job: travel, office space, materials, labor, benefits, etc. are a part of your payment. These are not additional items to your written contract. Those are all included with the contractor’s fee. Or they should be. If they are asking you to pay additional items, these payments are also taxable income.
So, the next time you receive a reimbursement request from your contract worker, take a minute to assess the situation. If they are already a contractor and are submitting extra expenses, those need to be recorded as taxable income – to be added to their Form 1099 at the end of the year.
As always, if you are not 100% sure what to do with the request, reach out to your MM Client Services Representative, who will help you navigate the ins and outs of paying a contractor worker.
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