Guide

Hiring help: employees, contractors and 1099s

The moment someone else helps in your business, new rules apply. This guide explains the difference between an employee and a contractor and the Illinois registrations a hire can trigger.

General information only, not legal or tax advice. I am not a lawyer, a CPA or an accountant. Flipfiled does not prepare tax returns or give legal advice. This page explains what government sources say. Rules, rates and fees change, so confirm with the agency. The dollar examples are made up to show the math.

The short version

• Paying someone to help you is not one thing. The law treats employees and independent contractors very differently, and who is which is decided by the facts, not by what you call them.
• Contractors generally get a Form 1099-NEC once you pay them over a threshold. Employees mean payroll, withholding, unemployment insurance and workers’ compensation insurance.
• Owners are a different question. Whether you can pay yourself a salary depends on how your business is taxed. See the S corporation section.

Employee or independent contractor?

The IRS looks at the whole relationship using three groups of evidence:

1. Behavioral control: does the business direct what work is done and how?
2. Financial control: who pays for tools and expenses, whether the worker can make a profit or take a loss, and how the worker is paid.
3. Relationship of the parties: written agreements, benefits such as insurance or paid leave, how long the relationship lasts, and whether the work is a key part of the business.

The IRS also says that if you want the IRS to decide whether a particular person is an employee or a contractor, you can file Form SS-8. Source: IRS Topic 762, Independent contractor vs. employee (opens in a new tab).

For a reseller, a person who works your listing schedule, uses your tools, follows your instructions and works only for you looks more like an employee. A photographer or shipping-service business that sets its own methods and serves many customers looks more like a contractor. A CPA or attorney should help you decide a real case.

Contractors and the 1099-NEC

If you pay a contractor for services in the course of your business, you may need to report it to the IRS and to them on Form 1099-NEC. Reporting has a dollar threshold. Trade publications report that for payments made in 2026 and later the threshold rose from $600 to $2,000, with inflation indexing afterward, under the One Big Beautiful Bill Act. I could not open the IRS instructions to confirm the exact wording, so confirm the threshold and filing date in the current IRS Instructions for Forms 1099-MISC and 1099-NEC before you rely on it. Source: CPA Practice Advisor, a trade publication (opens in a new tab).

An invented example, using the reported $2,000 threshold:

Good habits whatever the amount: get a Form W-9 from each contractor before you pay them, so you have their name and taxpayer ID, and keep invoices. See recordkeeping. Flipfiled does not prepare 1099s or give tax advice; a CPA can.

Selling products to someone who will resell them. The IRS instructions for Form 1099-NEC say that payers may use box 2 on Form 1099-NEC, or box 7 on Form 1099-MISC, to report any sales totaling $5,000 or more of consumer products for resale, on a buy-sell, a deposit-commission or any other basis. This text was supplied by Flipfiled’s owner from the IRS instructions page; read the current IRS instructions (opens in a new tab) to see how it applies. It matters if you ever sell to other resellers, not just to customers.

The 1099-NEC is different from the 1099-K you may receive from a selling platform. See Form 1099-K for resellers.

If you hire an employee

These are the main Illinois registrations and duties the state agencies describe. Federal payroll requirements (withholding from paychecks, payroll tax deposits and returns, and W-2s) also apply; a CPA or payroll service can walk you through them.

You also need an EIN to hire staff, per the IRS. See how to get an EIN. Misclassifying an employee as a contractor can create back taxes and penalties. That is a reason to ask a CPA before you start.

Paying yourself, and the S corporation question

You may have heard that an LLC can save tax by electing S corporation treatment and paying the owner a salary. Here is what the government sources say, and what they do not:

• The IRS says S corporations “must pay reasonable compensation to a shareholder-employee,” and that pay must come before non-wage distributions.
• The IRS can reclassify payments to a shareholder that were called distributions as wages, and wages are subject to employment taxes.
• The wages you pay yourself then go through payroll, with the registrations above. So an S corporation election adds payroll work and cost.
• Whether total tax comes out lower depends on how much profit there is, what a reasonable salary is, state and payroll costs, and other facts. No source I reviewed says it is always lower, so treat it as a question for a CPA.

Source: IRS: S corporation compensation and medical insurance issues (opens in a new tab). For the numbers and a worked illustration, read S corp vs LLC in Illinois. The election forms are listed on the free forms page, for information only.

Questions for a CPA or attorney

• Is this helper an employee or a contractor, given how they work?
• What do I need to register and pay before their first paycheck?
• Do I need workers’ compensation coverage, and what does it cost?
• Would an S corporation election make sense for my numbers?
• When must I issue a 1099-NEC, and by what date?

I am not a CPA or an attorney

This page is general information, not legal or tax advice. Flipfiled does not prepare tax returns, run payroll or give legal advice. For advice about your situation, talk to a CPA or an attorney. Checked Oct 30, 2026.