The simple answer is yes…if the work provided costs you $600 or more. The same is true even if you pay less than the $600 one one job but hire the same freelancer to provide $600 or more worth of work in any one calendar year. This $600 threshold is per the IRS code and applies to all independent contractors, which is what the freelancer would be considered.
A freelancer is ultimately responsible for claiming his or her income when preparing their taxes, but as a business you may have an added benefit of taxes deductions, under Rev. Proc. 2000-50, by making sure you have all freelancers fill out a W9 and provide the IRS a 1099. You will want to consult with your tax preparer, but in some cases you will be able to deduct expenses related to:
- Website Development
- Website Maintenance
- Online Marketing / Advertising
Requesting the W9 / 1099
It’s best practice to request the freelancer fill-out and return the completed W9 form to prepare the 1099 prior to making full payment. You can obtain the latest W9 form on the IRS website, http://www.irs.gov/instructions/iw9/ar02.html, and the latest 1099 form, http://www.irs.gov/uac/Form-1099-MISC,-Miscellaneous-Income-. You can either download the PDF or email it directly to the freelancer to complete. After you have received the form back, you can then proceed with sending payment. Requiring the W9 to prepare the 1099 affords you tax benefits, but you will need to also provide the independent contractor a completed 1099 form.
Providing a Completed 1099 to the Freelancer
Per IRS laws, any business transaction over $600 that REQUIRES the business (payer) to provide the independent contractor (payee) a completed 1099 form. As the business owner you will need to make this form available to the freelancer you hired by NO LATER THAN January 31st of the calendar year for the tax filing. The January 31st deadline allows both you and the independent contractor enough time to verify all paperwork is correct before filing your taxes.