I have an independent contractor who I paid $20k this year. They’re really good at their work, and I don’t want to lose them. But I also can’t afford to not claim that $20k as a business expense. It’s a side gig for me, and I gross $90k but only profit $6k a year.
The issue is, they told me getting a 1099 would affect their child’s Medicaid benefits, and I don’t know what to do. I feel for them, but I think I might have to stop working with them. Are there any options that wouldn’t break the rules?
Option 1: They could refund all but $500. If they make less than $600 in a year, no 1099 is required.
Option 2: Have them set up a corporation. You’re not required to file 1099s for corporations.
But honestly, don’t let their situation turn into a problem for your business. You’re legally required to issue a 1099 for the work. There’s no way around it without risking issues for yourself.
The contractor might be able to reduce their reported income by claiming expenses related to their work. For example, tools or supplies if they’re in construction. If you haven’t paid them all $20k yet, maybe some of it could roll over to next year. But ultimately, you need to send the 1099, and it’s up to them to handle their taxes.
You need to handle this the right way. Don’t deduct the expense without issuing the 1099. Someone has to pay taxes on that money—either you or them. The law is clear here.
rickyjones said:
You need to handle this the right way. Don’t deduct the expense without issuing the 1099. Someone has to pay taxes on that money—either you or them. The law is clear here.
Exactly. You’re required to issue the 1099, and the contractor is still responsible for reporting their income whether or not you do. Skipping it puts you at risk for legal trouble too.
You already know what needs to be done—issue the 1099 and claim the expense. This isn’t your problem to fix, and you don’t even know if their story is true. People sometimes make excuses like this to avoid taxes. Don’t risk breaking the law out of sympathy.
They could look into setting up a special needs trust or an account for people with disabilities. That might help them keep benefits while saving money.
I get wanting to help, but you should check with an accountant to see if there’s a legal way to manage this. Maybe deferring part of the payment to next year could help, but you need professional advice.