The IRS has recently changed the rules about how businesses should handle payments to freelancers. Now, they require that the employer provide paystubs to freelancers if their earnings are $600 or more in a calendar quarter. The idea is that this will help freelancers keep track of what they owe in taxes and ensure everyone pays their fair share. But does your business need to provide paystubs?
It may depend on how you work with freelancers and whether or not you’ve already made an agreement about paying them “under-the-table.” If you haven’t, then both parties need to know what they’re getting into upfront, so there are no surprises later on down the road.
Businesses Should Provide Relevant Documents to Freelancers
The IRS is clear about its position on paystubs. They state that any business paying freelancers $600 or more in a calendar quarter must provide them with a “reliable written statement” or a 1099 form.
If you’re familiar with the tax rules about reporting income to freelancers, this won’t come as a surprise. You may already provide paystubs or other documents that meet these criteria to stay compliant with IRS guidelines and ensure your company follows all of their federal laws.
In Europe, businesses hiring freelancers as independent contractors must provide them with a “statement of terms and conditions.” This is similar to what the IRS has now recommended for American businesses.
The good news about this policy change is that employers can use their existing pay stubs or other documents as worker’s compensation forms, tax records, or proof of earnings when filing reports with freelancers.
Providing Paystubs Is Crucial Especially When Working with Freelancers Directly
Whether working with freelancers directly or through an independent contractor network, it’s important to provide paystubs if your business meets the IRS requirements. These days it’s easy to get a paystub. You can generate payslips instantly through companies like ThePayStubs.
Paystubs are crucial information for freelancers and allow them to manage their taxes and finances better. The more informed they are about how much they earn, the better.
This is especially true if you are paying your freelancers “under-the-table” or in cash. Since they don’t have a pay stub to show what was earned for their time and effort, it’s difficult to know how much tax needs to be paid at the end of the year.
Paystubs Help Freelancers Establish How Much They Make
The lack of a paystub could also hurt freelancers when establishing how much they make on average if they want to switch jobs or open their own business.
In addition, this information can help them establish credibility as independent contractors with other businesses outside of your company. Suppose you don’t provide your freelancers with a pay stub. In that case, they may have difficulty getting other companies to work with them because it could appear as if their income is irregular or unpredictable.
Providing paystubs helps freelancers track the money coming in through your company, which can benefit everyone involved. It allows you to get paid on time while ensuring that taxes are collected and paid on time.
Paystubs Will Help When Validating Payroll Records
The IRS can check whether or not a company is giving proper documentation to independent contractors and how much they’re paying them compared to what was reported. If there are discrepancies between expenses listed on an individual’s pay stub and what was reported to the IRS, then this could result in penalties for your business.
By providing proper documentation through payroll records, you can avoid any potential problems with the tax agency while ensuring that freelancers are compensated fairly every time they work on a project or assignment.
Whether or not a business is required by law to provide an independent contractor with documentation showing how much was earned, it’s a good idea to do so anyway. Pay stubs can help freelancers track their income for tax purposes, and they will have access to the information from any company, not just yours.
