Remote Contractor Management: Tax compliance for US companies just got easier

Does your company work with external contractors? Is your company based in the United States? Are you curious about which contractor tax forms you need to complete?

If you answered “yes” to those questions, keep reading.

We’re excited to share the details of our new tax compliance feature for Remote’s Contractor Management platform, specifically designed to help HR and finance administrators meet IRS rules.

You probably already know about the income reporting regulations required by the Internal Revenue Service (IRS) — and you definitely appreciate how challenging it can be to stay on top of the taxation requirements when managing independent contractors. Now, Remote makes it easier than ever to manage your US contractors compliantly.

Let’s look at the latest IRS regulations and see how Remote takes the manual work out of this compliance challenge.

Contractor tax information US companies need to collect

Under IRS rules, companies must report payments made to contractors that exceed $600 for the tax year.

This means the company must first collect the contractor’s taxpayer information, including their taxpayer identification number (TIN) and other personal details.

For domestic contractors:

• Form W-9: US-based contractors must complete Form W-9.

  • The W-9 for international contractors collects the contractor's name, address, and TIN. This form is essential for companies to accurately report to the IRS using forms like the 1099-NEC. It makes sure that all payments and taxes are appropriately managed.

For international contractors:

• Form W-8 BEN: Contractors who reside outside of the US should complete Form W-8 BEN. This form isn’t necessary for international contractors.

  • W-8 BEN is used to certify the contractor's foreign status and eligibility for tax treaty benefits.

• Form W-8 BEN-E: If an international contractor is billing through their own company (such as a limited liability company) rather than as an individual, then Form W-8 BEN-E is required.

  • This version of the W-8 form is tailored to specific companies and includes provisions for declaring the company's status under the tax treaty.

Key differences between the forms:

It's crucial to distinguish between the common forms collected from employees and contractors.

Employees usually fill out Form W-4, which is used to determine federal income tax withholding.

Contractors mostly use Form W-9 to begin tracking their payments. This is a straightforward form that gathers basic taxpayer information.

In contrast, the W-8 forms are more complex. They address international tax status and treaty benefits, which affect how withholding taxes are managed.

Forms W-8BEN and W-8BEN-E ask the contractor to confirm whether the country they live in has a tax treaty with the US, which determines whether the payer should withhold tax from the payment. Not withholding the taxes could result in trouble with the US tax authorities and owed back taxes.

Any forms collected should be securely stored and made available for later reference.

How do you determine which form to fill out and if a worker is an employee or contractor?

It’s crucial to determine whether a worker is a traditional employee or a self-employed contractor for tax compliance purposes. Misclassifying an employee as a contractor can lead to severe penalties.

There are three ways to differentiate between the two:

1. Behavioral control:

• Employee: The company controls where, when, and how the worker performs their tasks. For example, they set hours or specific guidelines they must follow.

• Contractor: This individual has more freedom to decide on their hours and how to complete their work — as long as they fulfill their contract’s requirements.

2. Financial control:

• Employee: They typically receive a steady wage, and no significant investment in equipment or materials is needed for them to perform their job.

• Contractor: They often invest in their own tools and are more likely to have office expenses. They may also offer their services elsewhere as part of an independent business.

3. Relationship between the parties:

• Employee: They usually have a relationship with their employer that suggests permanence. They may also receive benefits such as health insurance and paid time off.

• Contractor: They work with the company on either a temporary or project basis, often without long-term benefits.

Forms needed:

• Employee: They fill out Form W-4 to determine their tax withholdings.

• Contractor: They fill out Form W-9 to facilitate the correct filing requirements of tax documents.

Due dates:

• Employee: W-4s should be collected when they begin employment.

• Contractor: W-9s must be on file before the contractor is paid for the first time. That helps ensure accurate 1099-NEC reporting at the end of the year and W-9 & 1099 tax compliance.

How Remote helps with contractor management

When you invite new contractors to onboard through Remote, they’ll automatically be asked to provide the correct form that applies in their situation. They can download the template in one click, sign, and upload right away.

These forms are stored in the Documents tab for easy access.

If you already manage contractors via Remote, they’ll see a notification asking them to provide the correct form before uploading their next invoice.

Generating 1099-NEC forms

After collecting the appropriate forms, the company must then send contractors another form summarizing the income paid to the contractor and whether any taxes were withheld.

• US-based contractors (those who provide a W9 form) should be sent Form 1099-NEC if they have been paid more than $600 in the tax year.

• International contractors (with W-8BEN or W8BEN-E forms) should be sent a 1042-S form—regardless of how much they have been paid.

• Form 1096 is needed if you’re filing by mail.

If you work with just one long-term contractor, generating the appropriate forms may be simple. However, the manual effort required to generate forms for dozens or hundreds of contractors can quickly become unsustainable.

Finally, the company must file a summary of all 1099 and 1042-S forms they have generated to the IRS.

Remote helps you stay organized

At the end of every tax year, Remote automatically generates the correct forms for every contractor with a paid invoice in the last year. Contractors and admins can access these forms directly in the Documents tab.

Frequently asked questions about contractor tax management

Looking for answers? Remote is always here to help.

What is the difference between Form W-2, Form 1099-MISC, and Form 1099-NEC?

Form W-2 is used by employers to report wages and other compensation paid to regular employees. It also reports taxes withheld from these payments. The W-2 an employee files is critical for their annual tax return.

Form 1099-MISC serves a broader purpose. It’s primarily used to report payments made to independent contractors (e.g., freelancers or consultants) for services performed. It also covers other types of payments, like rental income and royalties. Finally, it tracks any federal income tax withheld for backup withholding.

Form 1099-NEC (Nonemployee Compensation) was reintroduced in 2020. It’s used to report payments of $600 or more to non-employees.

This form helps businesses provide clear documentation of what they have paid each contractor. It makes sure that contractors can accurately report their incomes and that the IRS can assess the right taxes.

We haven’t collected tax forms or reported contractor payments before. Do we really need to start now?

Yes. Any US-based company that works with local or international contractors should follow the reporting requirements outlined by the IRS. Not following the proper withholding and reporting requirements could lead to penalties of up to $270 per contractor, plus back taxes.

Will every contractor need to provide a tax form, even if they aren’t US citizens?

Yes. If the company is based in the US, every contractor must provide either a W9, W-8BEN, or W-8BEN-E to declare their tax status.

My company is not based in the US, but we do have US contractors. Do we need to do anything?

No. If your company isn’t based in the US, then you have nothing to worry about! You have no requirements to report contractor payments to the IRS.

Is Remote responsible for filing Forms 1099 and 1042-S with the IRS?

No. Remote operates as a payments provider. It allows contractors to upload invoices and receive payments in their local currency. Your company — as the contracted party — holds final responsibility for compliance with your contractors.

Focus on your business, not contractor administration

This new product release is just one part of Remote’s long-term plan for easier contractor management. Stay tuned for our upcoming product announcements as we continue to help companies onboard and pay contractors around the world, reduce manual effort, and stay compliant with international laws.

Ready to onboard contractors now?

The signup process takes just a few minutes, and you can start paying local and international contractors in your local currency with ease. You can manage and approve one-off and recurring invoices using the Remote platform and initiate one payment for all of your contractors.

Handle contractor taxes with ease

Navigating contractor tax forms and compliance can be a complex task. We hope this article clarifies which forms to use when. By understanding these requirements, you can avoid penalties and fines.

Whether you’re new to working with contractors or streamlining your current process, Remote’s Contractor Management platform makes things easier than ever. Let it handle the complicated tax variables so that you can focus on growing your business.

Set up a meeting with Remote today to learn more.

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