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rainpurple
Level 1

Dealing With Contractors Who Received a Tip

I am an LLC owner who hired a contractor and when the customers' paid they gave a tip. How would one properly account for this if I agreed to pay the contractor $300 for each customer they have dealt with? 

 

1. If the scenario is that each of the customers' have been paying $600 on the bill but were only supposed to give $500 and wanted the extra $100 to go to the contractor, do I just count $600 as income, and then instead of paying the contractor $300 as is stated in the contract, give $400 to the contractor and include that on there 1099-NEC?

 

2. If the scenario is that I later found out that each customer has paid the contractor a $100 tip in cash how do I go about that? If I count that extra $100 as income for my business and file the 1099-NEC as if he was paid the $100 each time and then just not pay the contractor that extra $100 since he received it in cash, the contractor could claim he never received the extra $100 from me and I could end up paying over $1000 after combining each of the customers the contractor has dealt with. Is there a better/correct way to  go about this scenario?

Solved
Best answer August 18, 2020

Best Answers
Rustler
Level 15

Dealing With Contractors Who Received a Tip


@rainpurple wrote:

I am an LLC owner who hired a contractor and when the customers' paid they gave a tip. How would one properly account for this if I agreed to pay the contractor $300 for each customer they have dealt with? 

 

1. If the scenario is that each of the customers' have been paying $600 on the bill but were only supposed to give $500 and wanted the extra $100 to go to the contractor, do I just count $600 as income, and then instead of paying the contractor $300 as is stated in the contract, give $400 to the contractor and include that on there 1099-NEC?

 

Yes, that is how to do it

 

2. If the scenario is that I later found out that each customer has paid the contractor a $100 tip in cash how do I go about that? If I count that extra $100 as income for my business and file the 1099-NEC as if he was paid the $100 each time and then just not pay the contractor that extra $100 since he received it in cash, the contractor could claim he never received the extra $100 from me and I could end up paying over $1000 after combining each of the customers the contractor has dealt with. Is there a better/correct way to  go about this scenario?

 

You do nothing, you have not paid the contractor any additional funds

 


 

View solution in original post

2 Comments
Rustler
Level 15

Dealing With Contractors Who Received a Tip


@rainpurple wrote:

I am an LLC owner who hired a contractor and when the customers' paid they gave a tip. How would one properly account for this if I agreed to pay the contractor $300 for each customer they have dealt with? 

 

1. If the scenario is that each of the customers' have been paying $600 on the bill but were only supposed to give $500 and wanted the extra $100 to go to the contractor, do I just count $600 as income, and then instead of paying the contractor $300 as is stated in the contract, give $400 to the contractor and include that on there 1099-NEC?

 

Yes, that is how to do it

 

2. If the scenario is that I later found out that each customer has paid the contractor a $100 tip in cash how do I go about that? If I count that extra $100 as income for my business and file the 1099-NEC as if he was paid the $100 each time and then just not pay the contractor that extra $100 since he received it in cash, the contractor could claim he never received the extra $100 from me and I could end up paying over $1000 after combining each of the customers the contractor has dealt with. Is there a better/correct way to  go about this scenario?

 

You do nothing, you have not paid the contractor any additional funds

 


 

View solution in original post

rainpurple
Level 1

Dealing With Contractors Who Received a Tip

Ok I see, thank you for your time.

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