Can i do a retroactive 1099?

Question

I have a worker that worked a fair share of hours for me while i was building one of my houses. I originally offered him a cash hourly wage or a 1099 wage. At the time he wanted the cash wage, but now he is saying would rather have the extra money, and i can 1099 him for the hours worked if i pay him the added difference (about 2 dollars more an hour).

Its a win for me, because i can write off his hours on the books, and a win for him because im going to write him a check for the difference. Since i paid him most of the money in cash, im afraid i wont have a paper trail to prove all the compensation.

The work was all this year, so i still have time to give him a 1099 before the tax year is over.

Any thoughts on this?

Eamonn McElroy · Answer

@Sean Holland

"There isn't a question of employee vs. contractor. its a 1099."

You say that, but then you also say "1099 employee" which makes me think you don't grasp the foundational concept.

It's EITHER independent contractor aka 1099 OR employee. NOT "1099 employee." There is no such thing. It's like saying I'm a human alien... Those are two mutually exclusive groups (that we know of)....

Tax consequences stem from whether the worker is an employee or IC... that's why it is important.

It doesn't matter how you pay EITHER your ICs or your employees.  Cash or check or some other method.  What matters is how they are classified for tax purposes.

Natalie Kolodij · Answer

FYI even if you paid him in cash- you should be deducting that and he should be reporting it.

Even cash payments to him should be on a 1099.

You can issue it late and it'll have penalties. You answered a question on your tax return related to if you were required to issue 1099s and if they were issued- sounds like you didn't issue one you should have.

The fact that you're offering him a different wage for NOT giving him a 1099 is righttttt along that line of tax fraud, the assumption is not reporting income.

Bill Kramer · Answer

Anyone I pay cash to, i go to my bank and write a counter check to cash and put their name in the memo field.

January 1st, i get a printout of all checks i wrote to cash and now have a verifiable paper trail.

This has solved many a payment dispute as well, as I can show the actual check with the date that I paid my subs. Sometimes their memory is lacking...

Eamonn McElroy · Answer

@Sean Holland

Either he's your employee, or he's an independent contractor....

You can't choose...  It's a (relatively) brightline issue.

If he is your employee you should be running payroll and paying employment taxes...

I think you should either do more research or consult a local tax CPA and attorney...

Sean H. · Answer

Alright, so im just going to have him write me an invoice for the time he worked this year, and have him sign it (even though it was all cash), so i can 1099 him at the end of the year without any issues. Thank you everyone for the input.

Marc Winter · Answer

@Sean Holland,

This somehow doesn't pass the smell test.  (The cash or check payment part is immaterial.)

If you are building houses, you MUST know the difference between an employee and an Independent Contractor.  You offered an hourly wage--that's an employee.  An IC is paid by the job, ie contract.  Google the IRS rules.

You tried to save a couple of bucks, now this CON-tractor can cause you a lot of grief.

Get thee to a tax attorney, learn the laws, and stay out of trouble.  It ain't worth trying to skate around the Treasury Dept.

Bob Norton · Answer

@Sean Holland Yes, you can issue a 1099 to a contractor whether you paid cash or check.  If you plan to deduct the expense on your books, then you must have a record of the amount you paid him (that's your paper trail).  Get him to complete a W-9, so you have his SSN and address.

Sean H. · Answer

There isn't a question of employee vs. contractor. its a 1099. I guess what i'm mainly asking is whether you can pay a 1099 employee in partial cash or it all has to be check.

John Teachout · Answer

So you don't have records of what you paid him? I wouldn't think you would need to "prove" you paid him a certain amount unless he contested it. And he does realize he'll need to pay SE taxes on these funds, right?

Paying someone like you did is not legal so I would definitely want to straighten it out while you can to avoid issues with the IRS...

Wayne Brooks · Answer

I would think getting a receipt for the cash portion should work, but I’m not a cpa.

Can i do a retroactive 1099?

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