Do I Have to Give My Handyman a 1099 for Their Work?

Hiring a handyman for repairs or maintenance can be convenient, but tax obligations may come into play depending on their classification and payment. Understanding IRS rules on issuing a 1099 form is crucial to avoid penalties.

There are key factors in determining whether a 1099 is necessary, including worker classification, payment thresholds, and documentation requirements.

Worker Classification

How a handyman is classified for tax purposes determines whether a 1099 form is required. The IRS distinguishes independent contractors from employees based on behavioral control, financial control, and the nature of the contractual relationship. Misclassification can result in tax liabilities and penalties.

Behavioral Factors

The level of control over how tasks are performed is a key factor. If the handyman sets their own schedule, chooses their tools, and works without direct supervision, they are likely an independent contractor. If they receive detailed instructions on when, where, and how to work, they may be considered an employee.

Training is another indicator. Employees typically receive training on procedures and workplace policies, while independent contractors rely on their own expertise. If a handyman is trained by the hiring party, this suggests an employment relationship.

Financial Factors

How a handyman is paid and whether they have the potential for profit or loss also helps determine classification. Independent contractors typically invoice for their services, work for multiple clients, and cover their own expenses, such as tools and materials. Employees, on the other hand, are usually reimbursed for work-related costs and receive a consistent wage or salary.

If the handyman has a business license, advertises their services, or operates under a business name, they are more likely to be classified as an independent contractor.

Contractual Relationship

A written agreement can clarify the working arrangement, but it is not the sole determining factor. Even if a contract states that a handyman is an independent contractor, the actual working relationship must align with IRS criteria.

The duration of the engagement matters. A handyman hired for a single project with a defined scope and completion date is more likely to be an independent contractor. If they have ongoing responsibilities with set hours, they may be considered an employee.

Benefits such as health insurance or paid time off also play a role. Employees typically receive benefits, while independent contractors do not.

Payment Threshold

A 1099 form is required if an independent contractor is paid $600 or more in a calendar year. This applies to payments made by cash, check, or direct deposit. Payments made through third-party platforms like PayPal or Venmo are reported under Form 1099-K, which has different thresholds.

For personal home repairs, individuals are not required to issue a 1099. However, businesses, landlords, and self-employed individuals who deduct handyman expenses must file a 1099-NEC if payments total $600 or more.

Payments made via credit cards or payment processors are reported by the financial institution, not the payer. Platforms like Stripe or Square issue a 1099-K if transactions exceed $20,000 and involve more than 200 transactions in a year. If a handyman is paid exclusively through these methods, the payer does not need to file a 1099-NEC.

Required Documentation

Keeping accurate records is essential for tax compliance. Before making payments, it’s recommended to obtain a completed Form W-9 from the handyman. This form collects their legal name, business name (if applicable), taxpayer identification number (TIN), and entity type (sole proprietor, LLC, etc.). The information on the W-9 is used to prepare Form 1099-NEC at year-end.

Maintaining records of payments is also important. This includes invoices, receipts, bank statements, and any written agreements outlining the scope of work and payment terms. If payments are made by check or bank transfer, keeping copies of these transactions provides a clear audit trail. Accounting software like QuickBooks or Wave can help categorize payments properly for accurate reporting.

If a handyman operates under a business name, verifying their Employer Identification Number (EIN) instead of using a Social Security number can help prevent reporting issues.

Filing Process

Once all necessary information is gathered, Form 1099-NEC must be completed with the handyman’s name, taxpayer identification number, and total payments made during the tax year. The filer must also include their own tax identification details and business information.

The deadline to furnish Form 1099-NEC to the recipient and file it with the IRS is January 31. Electronic filers must use the FIRE (Filing Information Returns Electronically) system or an IRS-approved e-file provider. Businesses filing 10 or more 1099 forms in a year must file electronically. Paper filers must submit Form 1096 as a transmittal document summarizing all 1099-NEC forms.

Potential Penalties

Failing to issue a required 1099-NEC can result in IRS penalties. The penalty is $60 per form if filed within 30 days after the deadline, $120 per form if filed after 30 days but before August 1, and $310 per form if filed after August 1 or not at all. These penalties apply per recipient, meaning multiple missing forms can lead to significant fines.

If the IRS determines that a payer intentionally disregarded filing requirements, the penalty is at least $630 per form with no maximum limit. Misclassifying a worker as an independent contractor instead of an employee can also lead to back payroll taxes, interest, and potential legal action. Repeated noncompliance increases the risk of audits and further penalties.