Bonuses can be paid to independent contractors and freelancers. Independent contractors and freelancers also referred to as 1099 workers, work for your company on a contractual basis. The amounts paid to these workers are specified in a work order, which defines the associated work and fees. Work orders are usually tied to a Master Services Agreement. You can give a bonus to the freelancer, as long as you are following the contract terms and applicable employment laws.

Offering a Bonus to Independent Contractors

The bonus must be additional compensation beyond the pay specified in the worker’s contractual agreement for the completion of the contracted work. Also, the bonus should not be based on any terms or requirements that would conflict with the worker’s classification.

We recommend including any bonus offers and incentives within your contractual terms. You should specify the performance triggers that would trigger the bonus, as well as any variance. For example, early completion of a critical project could result in a bonus payment – an extra 5% for delivering one week early and an extra 10% for delivering two weeks before the deadline.

Tax Implications of Freelancer Bonuses

You do not need to pay payroll taxes on payments to freelancers and independent contractors. However, you must report any payments (in a given tax year) to an independent contractor or freelancer that total $600 or more. As of the 2020 tax year, report these payments using Form 1099-NEC. (Before the 2020 tax year, these payments were reported via Form 1099-MISC.)

The payments reported must be all-inclusive and include any bonuses. For example, if you paid a freelancer $500 as specified in your work order as well as a $100 bonus, then you would need to file a 1099-NEC by February 1st of the following year.

Secure 2-3 day payments to 200+ countries worldwide in USD and foreign currencies

US-based users of LiquidTrust™ can send payments to 200+ countries worldwide in USD and in 40+ foreign currencies without having to ask for bank information from your suppliers, vendors, contractors, and freelancers. In addition, vendors anywhere in the world can use LiquidTrust to invoice Clients, even if those Clients are not users of LiquidTrust. LiquidTrust makes it easier to send and receive supplier, freelancer and vendor payments, anytime, anywhere.

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