Finding and Paying Construction Contractors

Finding Construction Contractors

contractor on jobWhen you are looking for construction contractors, you need to go about it carefully. There are thousands of construction contractors across the country, and most of them are available for hire. With the recent trend of homeowners wanting to update their properties, these construction contractors have seen a tremendous growth in demand. When you are searching for construction contractors, make sure that you manage your search methodically. After all, you have hundreds of options. What is the point in limiting yourself to the first company that you come across?

You can find licensed construction contractors by searching your local yellow pages, and will have plenty of options to get started. If you don’t find a suitable person or team that you are comfortable working with, you can move onto the internet. By doing this, you will be able to broaden your search and bring in more candidates.

Savvy people rely on referrals when they are considering the hire of a licensed construction contractor. The reason they do this is obvious; they want to be confident in the quality of the contractor’s work before making a commitment. By obtaining referrals, you may also be able to view recent projects that the construction contractor has finished. This will give you a good idea about who you will be working with and what you can expect as an end result.

Prior to hiring construction contractors to perform work for you, make sure that you interview them thoroughly. Be sure to ask questions pertaining to price, features, and past projects they have completed. This will give you the background information that is necessary in order to make an informed decision. Many people attempt to get away with skipping this step, but to be safe it is better to ask abundant “what if” questions.

Finding construction contractors can be as easy as looking in the yellow pages. However, there is a big difference between licensed quality contractors and those who imitate them. Narrow down your choices, and then ask all the questions you need to ensure you are on the right track. By doing this you will have a core of quality construction contractors to choose from.

Paying Construction Contractors

paying contractorsIf you make payments to independent contractors in the course of your business, payments that total over $600 for a calendar year to any individual contractor must be reported on a Form 1099-MISC that you send to the contractor and to the IRS. One of the reporting requirements on Form 1099-MISC is the contractor’s tax ID number. The tax ID number could be the contractor’s social security number or a federal employer identification number.

You should always request the contractor’s tax ID number when you contract the work and before paying the contractor. Make sure you give the contractor a Form W-9 to request the tax ID number. If the contractor does not give you the number, you would generally be required to withhold tax at a rate of 28 percent on payments to the contractor, until a valid tax ID number is provided. As the payer, you could be subject to a penalty if you do not comply with the backup withholding requirements.

If you submit a 1099-MISC without a taxpayer ID number for the contractor, or if the contractor has given you an invalid number, the IRS will send you a CP2100 or CP2100A notice. This notice means that you have to start backup withholding on payments to the contractor. You will also have to make annual solicitations to obtain the contractor’s correct tax ID number. You must make these solicitations in order to avoid a penalty for failing to include a valid taxpayer ID number on Form 1099-MISC. If you pay a contractor who is not a citizen or resident of the U.S., you may need to withhold U.S. income tax from the payments. Tax would generally be withheld at a rate of 30 percent. But you would not be required to withhold tax if the foreign contractor is exempt from U.S. income tax because of a U.S. tax treaty with the contractor’s home country. In this case, the contractor should provide you with a Form W-8BEN. If you withhold tax from foreign contractors you would need to file Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, as part of your year-end tax information reporting.

According to the IRS, agricultural workers with an H-2A visa are eligible to obtain a social security number. If they are unable to obtain a social security number, they can obtain a taxpayer ID number from the IRS. You are not required to withhold U.S. federal income tax from payments to these workers, unless they request voluntary withholding. The amounts you pay these agricultural workers would be reported on Form W-2 and not on Form 1099-MISC. But if the worker does not provide you with a social security number or taxpayer ID number, you would have to withhold U.S. federal income tax at a rate of 28 percent until the worker provides the number. If total payments are over $600 for the year, you would report the payments and the tax withhold on Form 1099-MISC.

To summarize, in order to support your tax deductions for payments to contractors, you should first request the contractors’ tax ID numbers before you contract and pay them. Give the contractor a Form W-9 to complete and keep a copy for your records. If the IRS determines that the number is invalid, you should comply with the backup withholding requirements and keep copies of the annual solicitations.

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3 responses to “Finding and Paying Construction Contractors”

  1. Cynthia French says:

    Your explanation about how to pay construction contractors makes sense. I asked for my contractor’s tax ID right from the start and it saved me a lot of trouble on the back end. The contractor was a dud and I had to get rid of him but the paperwork was intact.,

  2. Mary Seklow says:

    I like this article, especially the section about paying construction companies.

  3. Carole Wall says:

    Thanks for the terrific guide. I found a great contractor.

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