Paying mileage to independent contractors11/23/2023 ![]() Using a payments method with a built-in audit trail can help you avoid this. Another common suspicion? That you’re using cash to inaccurately report your company’s expenses in order to reduce taxable income.Īudits and investigations can be costly and come with dire consequences. You might be attempting to put off paying payroll taxes, or to help your contractors avoid their own income tax responsibilities. Why? In the eyes of the state and federal authorities, the reason you’re choosing to pay your 1099 contractors in cash could be less-than-altruistic. That’s because if your company is audited by the IRS, you have to be able to prove that there wasn't a suspicious reason for paying your workforce in cash. While it’s not illegal to pay your independent contractors in cash, it might end up being more hassle for you. Why it’s a bad idea to pay independent contractors in cashīecause of the nuances involved with paying independent contractors, is it really a good idea to pay them in cash? While it remains legal, it probably isn’t the smartest business idea. This form helps the IRS track payments made from your business to contractors each year. In addition, they aren’t typically provided the traditional benefits that W-2 employees are given, like health insurance, which your company would have to pay for as well.Īny independent contractor who you pay $600 or more to in a given year also requires a 1099-NEC form for tax purposes. As business owners, contractors are responsible for setting aside savings to pay their own taxes either quarterly or at the end of the year. (If you’re interested, the IRS has specific guidelines on how to classify workers as W-2 or 1099-we have a whole blog on it, too!) The biggest differences are that you don’t withhold taxes from independent contractors’ paychecks. Paying independent contractors is not the same as paying W-2 employees. What makes paying independent contractors unique? Before we get into that though, here’s a quick refresher on the differences between paying W-2 employees and 1099 contractors. However, it’s not a great business practice for a number of reasons. Paying independent contractors in cash is NOT illegal. Is paying independent contractors in cash illegal? Sifting through all that information can get dizzying that’s why we’re here to break down everything you need to know about paying 1099 independent contractors in cash. The search query yields more than 27 million results about the intricacies of contractor payments, taxes, and proof of income. If you’ve ever wondered if you can pay independent contractors in cash, you’re not alone.
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