Benjamin Franklin once said that nothing is guaranteed in this life except for death and taxes. So, setting your organization up for success with the appropriate freelance documentation is sure to help every year.

Freelancers come with many benefits, and one of the biggest is decreased personnel costs. This is because contract employees don’t require the same tax burden as a full-time hire.

If you’re just starting to onboard freelancers read on to learn about the right tax forms for your freelancers.

Best tax forms for freelancers

What forms do you need when you hire a freelancer?

The best time to start the tax process for freelancers or contract hires is right when they start.

In fact, you should not be requesting (or paying for) any work until you have the appropriate employment documentation from your freelancers.

These requirements include:

  • A contract and/or SOW outlining the terms of the engagement.
  • A non-disclosure agreement (NDA) to protect your company’s intelligence.
  • Payment information like ACH or PayPal.
  • A W-9 form.

Do freelancers need to fill out a W-9?

All U.S.-based 1099 (contract) workers will need to complete a W-9. Form W-9 is an IRS form used to verify your contractor’s name, address, and Taxpayer Identification Number (TIN). This TIN may be a social security number if you are hiring an individual, or an Employer Identification Number (EIN) if you are hiring a firm or LLC.

In some instances, a freelancer may need to complete a Form W-8 instead. Only an international individual or company can use a W-8. A W-8 form documents that the international contractor is not required to pay taxes.

Are you classifying freelancers correctly?

It’s important to note that not all temporary or overflow employees can be considered freelancers from a legal perspective. If you are only hiring freelancers to help with content creation, this likely isn’t an issue.

The legal requirements to call a worker a contractor are:

  • The contractor controls when and how they work.
  • The contractor does not require training or onboarding.
  • The contractor works on a fee-based contract.

forms you need to provide to freelancers

What forms do you need to provide to freelancers before tax season?

As the new year rolls around, you as the employer will be responsible for sending 1099 forms to your contractors. A 1099 is similar to a W-2 in that it provides a record that an entity or person gave or paid a worker money.

Prior to 2020, if you were a freelancer or your small business hired contracted work, you either issued or received a 1099-MISC. Now, the IRS requires Form 1099-NEC (non-employee compensation) for reporting independent contractor income.

You should send all tax forms to freelancers no later than January 31.

What is Form 1099-NEC?

The 1099-NEC is a form specifically for reporting non-employee compensation. Any individual who is not on payroll or who works on a contract basis to complete projects or assignments falls under this umbrella. So independent contractors, gig workers, and self-employed freelance writers would all need to receive a 1099-NEC.

Form 1099-MISC is now only used for miscellaneous income such as rent or payments to an attorney. Make sure you are not sending your freelancers the wrong 1099 form.

Do all freelancers need a 1099?

There are two main scenarios in which a freelancer may not require a 1099. The first and main one is the total money they received.

If your freelancer has earned less than $600 from your organization, they do not meet the threshold to require a 1099-NEC. This may occur because you brought a freelancer on late in the year, or if they only completed a few projects here and there that totaled less than $600.

The other reason you, as an employer, may not need to send a 1099 is if you make payments through online portals. A form 1099-K reports payments made through credit, debit, or apps like PayPal.

What is a 1099-K?

If you pay your freelancers through online platforms such as PayPal or Venmo, they may need a Form 1099-K: Payment Card and Third Party Network Transactions. You, as the employer, won’t be responsible for distributing this form. PayPal will distribute the appropriate forms.

cost benefits of hiring freelancers

The cost benefits of hiring freelancers

The financial pros of hiring freelancers are easy to see. A freelancer is a flat rate: you pay a set fee for a set piece of work.

If you were to hire a full-time employee, you would need to pay:

  • Salary
  • Bonuses
  • Health, dental, and life insurance
  • Paid time off
  • Retirement account matching
  • Payroll taxes (such as Social Security, Medicare, and unemployment)
  • Workers’ compensation
  • Other perks

Many of these factors are intangible or hard to generalize. However, it’s commonly accepted that total employee costs are between 1.25 and 1.4 times an employee’s base salary.

So, paying an in-house writer $50,000 will cost more like $70,000.

You would need to ask a freelancer charging 50 cents a word to write a whopping 140,000—the length of J.R.R. Tolkien’s Return of the King. So while sending out tax forms for freelancers can take an extra minute with the accounting department, it’s well worth it in the long run.

Find contract-based work for your website

There’s no shame in asking for help, especially when it comes to your business.

Whether you need an extra set of keyboards to write blogs, a graphic designer to help make your next presentation deck pop, a video designer to foray into a YouTube strategy, or beyond. Freelancers can be a huge financial benefit for companies of all sizes.

If you find you need help with content strategy, ClearVoice offers a content strategy session to help you establish a content marketing plan.