Verify Business Entity, EIN, and Insurance
At 4:40 in
How to understand IRS Regulations- Employee or Independent contractor
What happens here
For proper classification, independent contractors should ideally operate as their own legal business entity (e.g., S-Corp, LLC), possess their own Employer Identification Number (EIN) rather than a Social Security Number, and carry their own business insurance. Obtaining a copy of their insurance certificate and EIN before work begins is crucial. The tax professional explains that if a subcontractor is a corporation or LLC using an EIN, you might not even need to issue a 1099 form, though checking current IRS rules is always advised. These factors clearly demonstrate their business independence.
Goal: Confirm the subcontractor operates as an independent business with proper legal and insurance standing.
Tools and materials
- Employer Identification Number — Identifying the subcontractor as a business entity for tax purposes
- Legal Business Entity — Structuring the subcontractor's business for tax and legal purposes
- W-9 Form IRS — Obtaining the subcontractor's correct taxpayer identification number (TIN) and certification