Coming from a public accountant, a good rule of thumb to follow is thus:
1. If you pay an INDIVIDUAL (as in you made a check payable to John Thomas) more than $600, you issue a 1099 (caveat, this is for US Federal purposes. Check with your state to determine if it complies with Fed filing requirements) if they are independent contractors or W2's if they are employees. There is a vast difference between tax treatments of the two and business people have been taking advantage of this for decades. This is also were CA and other States are most concerned. By paying an individual as an independent contractor, you're not withholding and remitting taxes - money needed by the state/city to pay for things like firefighters, police, librarians or any other public works bill. You're also not paying worker's comp insurance, Family leave, etc, etc. It cuts the state out of what it sees as its fair share of tax revenue, especially when the individual receiving the 1099 may not even file their taxes, or if they do, take improper treatment of deductions to lower their tax liability. Remember, it's the taxpayer's responsibility in this country to prove how much of a return they are entitled to, NOT the government's to prove how much they owe. Sucks, but it's the truth. The alternative is to have a government auditor come into our homes every years, give them access to our bank and financial information, and let them decide how much of our money we should keep. To help combat this, the IRS set standards (not rules) on who is considered to be an independent contractor, standards like controlling when they work, how they work, where they work, conditions for work. Most states follow these standards, though some don't. Because these standards (not rules) are meant to be guidelines, they are left open to interpretation, and employers have interpreted them in so many ways that court cases more than a decade old are still pending. CA's AB5 sought to clarify this. This will mean the death of some "gig" economies in the state, just as when the IRS created their guidelines in the first place, but will also mean that companies like Lyft and Uber are correctly classifying employees as well.
2. If you pay a BUSINESS (as in you made a check payable to John Thomas Design LLC), you generally don't have to worry about issuing 1099's. There are exceptions to this rule, but a competent accountant will know what they are. The point is when we hire someone to edit, do cover design, format or any other number of tasks, we are hiring them to do one off work. We are not giving them a job even if we hire them multiple times. We do not control when they work, how they work, or where they work. As such, none of the AB5 laws apply to the vast majority of us. If you want to make sure you're covered in case of an audit, keep good notes and records, save receipts, and generally don't be piggish about pulling the wool over the government's eyes. We get you don't like paying taxes, but like an old friend of mine says, "Fines are what you are forced to pay for doing something poorly, taxes are what you're forced to pay for doing something well."
