What is the W-9?
A W-9 form is quick and simple. It requests basic information about the contractor that is readily accessible. Most contractors can complete the form on the spot.
If you or your organization is paying someone for any work, rent, or goods, regardless of how often they work or how old they are, have them fill out a W-9 form. Contractors need to complete the W-9 before you pay them.

Do we really need to fill out the W-9?
Yes. Um, it’s the law. We are glad to teach you about these issues prior to any legal consequences, and that’s part of our role in serving you. But here’s the bottom line: your people need to fill out the W-9s so your organization can be in compliance with the law. (The IRS isn’t always as kind as we are.)

Can’t we do it under the table?
Ummm… NO! We get the idea behind this. But in order to act with integrity, it is your responsibility to follow through with the laws related to paying people. An organization cannot maintain integrity if they are willing to assist people in avoiding taxes. It’s that simple: be honest.

But my child is only 16.
The IRS is not concerned with how old your honor student is. They want you to fill out the form.

But I am doing a favor to this business by not reporting my income.
If you’d like to help them out, then volunteer your time. Then they won’t have to pay you. But since they are paying you, go ahead and fill this out the form so can you get your money. It really is that simple.

But I am only going to do this job (project, whatever) once.
Think you have a short-term contractor? They’re not planning to do this task more than once? We can offer you loads of examples of how that statement was actually the beginning of a great relationship. The person will likely do the work once, and then word will spread about how great they are. They will start getting calls from other locations, departments, etc., and before you know it, they have passed the $600 threshold. Suddenly, you’ll be caught up during a busy time of year, and you’ll still have to track them down to get this form filled out. Just go ahead and have them fill it out now. ‘Cause they might be one stellar contractor who will turn out to make some serious cash.

Is there any way to work around this?
You can attract more volunteers! Perhaps you are paying someone to do tasks that could be completed by a volunteer instead? When people are looking to get involved and connected, they are willing to help out. As you broaden your volunteer base, you’ll have less W-9 forms to complete and less 1099′s to send.
By the way, paying someone in cash to avoid the W-9 is a no-go.
If you really want to skip this, then the other legal option is to withhold 28% of the payment, then fill out the W-4 form, add them to payroll, pay payroll taxes on them, and submit it that way. This seems like a poor option since the [now] employee will lose a large chunk of pay up front, and in the end, there is still a form to fill out.
Be smart. Fill out the W-9. Have we proved our point yet? ☺

When is the 1099 required?
ALL individuals not on payroll are subject to 1099 reporting.
Corporations with “Inc” in their name are NOT subject to 1099.
A company that has “LLC” in their name MUST fill out a W-9. They may (or may not) be subject to a 1099, but the only way for us to know is if they fill out the W-9.
A company that does not have “Inc” in their name could be a sole proprietor, and the company IS subject to 1099.
All legal fees ARE subject to 1099.
1099’s will only be issued when total payments for the year exceed the IRS threshold (currently $600).

When will the IRS get involved?
The IRS gets involved when the contractor makes $600 or more. At that point, the payroll provider (or accounts payable person) fills out a 1099 form and sends it to the contractor and the IRS. That contractor will then comply with the tax liability that is relevant to his/her situation.
Per IRS regulations, all of the 1099 forms must be submitted in a batch—all the forms at once. So, if your organization is late with your 1099 (they are due 1/31), you must pay a penalty to the IRS – per form! – even though it might have been only one W-9 holding it up. So, nobody wants to spend the month of January trying to track down W-9’s for a whole year of payments. It’s best to get the W-9 BEFORE you pay the contractor! Make it a requirement… Don’t pay any contractors until you receive a W9.

Independent Contractors

Workers are classified as contractors if:
• They normally set the order and sequence of work.
• They work for others at the same time.
• They are paid by the job.

The following payments are usually classified as contract labor transactions:
• Honorariums paid to guest speakers.
• Stipends (periodic payments) made to band members.
• Honorariums and stipends seldom—if ever—have income tax withheld.

Contract labor payments are made at gross amount with no federal, state, or FICA withholding. It is the contractor’s responsibility to file and pay taxes.

If a contract agreement is for an extended period of time and/or for specific projects, we advise both the employer and the contractor to sign a written agreement describing the nature of the work and the compensation arrangement.

Employees

Workers are classified as employees if:
• They maintain continuous, standard hours of employment.
• They are subject to dismissal.
• They can quit at anytime without penalty.
• They receive business-expense reimbursements.
• They must follow the organization’s work instructions.
• They receive on-the-job training.
• They receive routine payments of regular amounts.

When a person is paid as a regular employee:
• The employer withholds and pays all the necessary employee income taxes as required by the IRS. These taxes include federal income tax, state income tax, and FICA (social security and Medicare taxes).
• The employer pays employer taxes, including FICA. (Churches are exempt from FUTA (federal unemployment) and SUI (state unemployment insurance) taxes.)
• Your payroll processor will manage these calculations and transactions.

Full-time employees and part-time employees are defined by the required hours and earned benefits that are unique to each organization. We recommend hiring part-time employees for 25 hours per week. Generally, the government mandates employers to provide comparable health insurance coverage to all employees who work more than 25 hours per week.

Want to learn more about classifying your workers? See what the IRS has to say on this topic.
See what the IRS has to say on this topic.

Each person or family is required to pay a monthly fee (this is NOT a premium). This monthly fee pays the health care costs of other families in the program. When you need health care, the money comes from this fund as well. In addition to their monthly fees, members are encouraged to give further money in order to help pay for the treatments of others. This is necessary because medical costs are high and the monthly fees are low.

None of these organizations will guarantee that your medical bills will be paid. This is very different from traditional insurance, and it can get very dangerous. Take this example.

Couple A needs emergency care. Upon arrival at the ER, they present their card, and the hospital discounts the bill per the prearranged discounts. The hospital sends the bill to the health share company, who then examines the bill to determine if they will share the expense. (This is a faith-based option, so several moral issues will preclude services being shared. If the health problem involves tobacco, alcohol, or a sexually transmitted disease, the bill is not likely to be covered.)

If the health share company accepts the bill and agrees to pay for the services, Couple A is required to pay the deductible. Then, the remainder of the bill is published for other members to contribute those extra dollars we talked about earlier. Obviously this will take some time!

So, after Couple A has received their emergency care, the hospital sends a bill for the remaining amount due. The sharing hasn’t been fully funded, so the couple must pay out-of-pocket and hope that their sharing community will pay for the rest of it. In the worst-case scenario, the bill may be sent to collections. The couple may be sued because they cannot afford to pay the bill while the health share company tries to gather funds.

Here’s the bottom line: health share companies can put you under undue financial risk. Traditional healthcare is available, and these insurance companies operate under laws and regulations to protect you and your family.

HMO stands for Health Maintenance Organization. This form of health insurance combines a range of coverages in a group basis. Doctors and other professionals are paid a flat monthly fee whether you see them or not. You pay the same amount every month, as long as you see doctors within the approved network. If you need to see a professional outside the network, you will first need a referral from a primary physician within the HMO, and then there may be additional fees to see a doctor outside of the network. Any visit, prescription, or additional care must be approved by the HMO in order to be covered. Kaiser Permanente is an example of an HMO.

What is PPO?

PPO stands for Preferred Provider Organization. This is a health care organization composed of physicians, hospitals, or other medical specialists who provide health care services at a reduced fee. If you see a doctor within the network, you’re responsible for only a small fee. Within the PPO, you have some flexibility to see any doctor you choose. You can see out-of-network professionals if you’re willing to pay a higher price. There is often a copayment, deductible, and coinsurance, but you typically do not need approval from your primary doctor before seeing a specialist. A PPO is similar to an HMO, but the doctors are paid whenever you see them as opposed to a flat monthly fee. Ultimately, in a PPO, you have flexibility to see doctors—within or outside of the network—with less “red tape.”

What is HSA?

HSA stands for Health Savings Account. This is part of an employee’s health plan, and both the employee and the employer can make deposits into the account. The individual employee has the freedom to utilize these funds to pay for a variety of medical expenses, such as insurance co-pays, deductibles, and over-the-counter medications. In fact, you can even use HSA money to pay for cosmetic surgeries, glasses, dental work, etc. Nearly every medical expense can be paid with HSA money. The HSA account operates like an IRA—it earns interest. If you don’t use the money, you can take it out (tax deferred) when you’re 59 ½ years old. In order to setup an HSA, you must have an HSA-qualified insurance policy. This usually means you’re going to pay a higher deductible.

Health insurance works in much the same way. There are various kinds of health insurance, but they generally work through a claims system. Your doctor provides treatment, and your insurance company receives notice of your claim. The company determines if your insurance policy covers this treatment, and the bill is settled. If any balance remains after the insurance company has paid their portion, then you must pay the remaining bill. This is what all that “Deductible” and “Coinsurance” stuff is all about.

If you go to the doctor, most of the time you pay a fee, regardless of your coverage under health insurance. Some health insurance plans come with a deductible. Others come with a per-use payment called a co-pay. Some come with coinsurance. Most plans come with all of the above: a co-pay, a deductible, and coinsurance. This amount can vary by plan.

A copay is a fee you pay, regardless of the bill or the service you’re having done. This is typically just a flat fee, depending on the type of procedure or the type of doctor you’re seeing. A deductible is the portion of the bill that you’re responsible to pay, up to a certain dollar amount. Once your deductible is met, coinsurance kicks in. You might see that coinsurance is 80% / 20%. This means that after you meet your deductible, your insurance company will step in and pay 80% of every bill. You will be responsible for the remaining 20% of the bill. Then, you can be thankful for the “Maximum Out of Pocket”: after you’ve met the deductible, you’ll pay 20% of every medical bill until you reach the maximum out of pocket. Then you’ll be finished paying medical expenses for the year.

All of these elements are designed to spread the risk among multiple people so no single person or family becomes responsible for 100% of the bill. This is the true definition of insurance: spreading the payments amongst multiple people.