http://www.sqlservercentral.com/blogs/jamesserra/2012/04/11/consultants-corp-to-corp-vs-1099/ Printed 2014/11/25 10:25PM
Consultants: Corp-to-Corp vs 1099
I blogged previously that when you are a consultant or contractor, you can sometimes be faced with the decision when taking a new contract of whether to go 1099 or W-2 (Consultants: 1099 or W-2?). However, some staffing firms or clients don’t do 1099, but instead do Corp-to-Corp (C2C). In short, Corp-to-Corp means that your client, which is a corporation, pays your business, which is organized as a corporation, for the services rendered by you. Your client may prefer this instead of 1099 as it protects them from the risks regarding the employer-employee relationship (even though you are paid via 1099, the IRS might still consider you an employee and disallow your independent contractor status. See IRS Publication 1779: Independent Contractor or Employee? and Consultants, know how the IRS determines employee status. If this were to happen, the company you work for would owe back payroll taxes, so some companies prefer Corp-to-Corp to avoid this situation).
I have done C2C a few times when I was subcontracting for a consulting company. You might find clients that have a checklist similar to the one below that you must adhere to in order to do a C2C (some call it an “Independent Consultant” (IC) agreement):
- Is the subcontractor an independently established business registered with or incorporated in one of the United States (as opposed to merely an individual)? DOCUMENTATION REQUIRED IF ANSWER IS YES: Subcontractor must submit copy of Certificate of Incorporation.
- Does the subcontractor possess a Federal/Employer Tax I.D. Number (as opposed to only an individual’s social security number)? DOCUMENTATION REQUIRED IF ANSWER IS YES: Subcontractor must submit copy of formal notification of Tax ID number and completed W-9 Form (attached hereto).
- Does the subcontractor issue paychecks and W-2 Forms to its all personnel (as opposed to business checks and Form 1099s)?
- Does the subcontractor make payroll deductions for its personnel’s federal, state and local income taxes, FICA, FUTA, SUTA and required disability insurance (if any) from its personnel’s paychecks?
- Does the subcontractor file all required employment tax and payroll reports (such as IRS Form 940s and unemployment insurance contribution reports) with the appropriate agencies?
- Does the subcontractor obtain Form I-9s for its personnel? Does the subcontractor currently employ the individuals/candidates being presented for consideration with our clients?
- Does the subcontractor currently employ the individuals/candidates being presented for consideration with our clients? DOCUMENTATION REQUIRED IF ANSWER IS YES: Subcontractor must provide proof of employment, i.e. visa if sponsored or other employment documentation.
- Does the subcontractor provide workers compensation coverage for its personnel? DOCUMENTATION REQUIRED IF ANSWER IS YES: Subcontractor must provide proof of coverage via a Certificate of Insurance issued to us.
- Does the subcontractor possess General Liability Insurance coverage?
- DOCUMENTATION REQUIRED IF ANSWER IS YES: Subcontractor must provide proof of coverage via Certificate of Insurance issued to us. (Min. coverage $300,000). Note: Most require 1 million in GL coverage, which you can get for around $400-500/year. I got my coverage from TechInsurance
- Does the subcontractor have workers compensation and auto insurance?
- Does the subcontractor provide similar services to companies other than us, i.e. is the subcontractor free to do business with anyone who may wish to contact it, even while its personnel are performing services for us?
- Does the subcontractor advertise in the Yellow Pages, internet postings (Internet-Monster, Dice, etc), local newspapers, trade publications, or other media? If so, are the services marketed by the subcontractor the same as those the subcontractor will be providing us?
The major difference between C2C and 1099 is that with C2C, you don’t have to pay self-employment taxes on your income. However, you do have to pay yourself a salary and with it both employer and employee taxes.
Consultants: W-2, 1099 or Corp-to-Corp?