How to pay someone I freelance with

August 28, 2007 2:08 PM

How should payment be handled when freelancing with another person?

I'm a web developer and occasionally I get some freelance work on the side. I usually work with a designer I know. In the past, I've had the client write a separate check in the designers name for his amount. I'd like to stop doing this - it just seems kind of unprofessional and I'd like everything to go through me.

I'm kind of clueless as far as taxes - I've got an accountant to handle them for me since they've gotten more complicated. I do maybe 2 or 3 freelance projects a year and have always used the self-employment tax form, or gotten a 1099.

My question is, if the client pays me the full amount and I then pay my designer out of that, am I responsible for paying taxes on the full amount?

I know there are a lot of people here who freelance and I'm wondering what's the best way to do this.

posted by eightball to work & money (4 comments total)

The client will give you a 1099 for what they paid you, and you will give the other guy a 1099 for whatever portion of that you paid him. In the end, you'll pay taxes only on your earnings and he'll pay taxes on his. No biggie.
posted by spilon at 2:13 PM on August 28, 2007

What spilon said.

You can pick up the 1099 forms at any office supply store around tax time. It's not a complicated form either -- it's really just who you paid and how much you paid them. That's what tells the IRS that you don't have to pay taxes on that money (and that the designer you work with will have to pay taxes on it).
posted by malphigian at 2:35 PM on August 28, 2007

Make sure you get a deposit for your services and those of your freelancer. That way, if the client fails to pay, you still have enough to pay out the freelancer. Moreover, if the client is late in paying, you are still obligated to pay the freelancer on time, so this deposit facilitates that.
posted by acoutu at 4:41 PM on August 28, 2007

What happens is that you fill out your schedule C for self-employment income, you will show 100% of the what the client paid you as income and then deduct what you pay the your designer as an expense. Since you get taxed on net income (after business expenses) it all works out. However, to be legal you do also need to give your designer a 1099.
posted by metahawk at 5:07 PM on August 28, 2007