FAQs - California Independent Contractor Reporting
Any business or government entity (defined as a "service-recipient") that is required to file a federal Form 1099-MISC for services performed by an independent contractor (defined as a "service-provider") must report.
A service-recipient is any business or government entity that is required to file a federal Form 1099-MISC for services performed by an independent contractor. A service-recipient means any individual, person, corporation, association, or partnership, or agent thereof, doing business in this state, deriving trade or business income from sources within this state, or in any manner in the course of trade or business subject to the laws of this state. A service-recipient also includes the State of California or any political subdivision thereof, including the Regents of the University of California, any charter city, or any political body not a subdivision or agency of the state, and any person, employee, department, or agent.
A service-provider is defined as an independent contractor; an independent contractor is any individual who is not an employee of the service-recipient for California purposes and who receives compensation or executes a contract for services performed in or outside California.
You are required to provide the following information.
Service-Recipient (Business or Government Entity):
- Federal employer identification number (FEIN)
- California employer payroll tax account number (if applicable)
- Social Security number (SSN)
- Service-recipient name/business name, address, and phone number
Service-Provider (Independent Contractor):
- First name, middle initial, and last name
- Social Security number
- Start date of contract (if no contract, date payments equal $600 or more
- Amount of contract including cents (if applicable)
- Contract expiration date (if applicable)
- Ongoing contract (check box if applicable)
As of January 1, 2001, you must report information to the EDD within 20 days of either making payments totaling $600 or more or entering into a contract for $600 or more with an independent contractor in any calendar year, whichever is earlier. Report each independent contractor once each year.
- Submit a Report of Independent Contractor(s) (DE 542), electronically with e-Services for Business. For information on reporting independent contractors online, visit the FAQ - e-Services for Business page or the Electronic Filing Guide for the Independent Contractor Reporting Program (DE 542M).
- Submit a paper report of independent contractors by mail or fax. You may complete the DE 542 or create your own form with all the required information. You can obtain a DE 542 using the following options:
- Download a fill-in DE 542 form from the EDD website.
- Order the form through the Online Forms and Publications webpage.
- Print your data directly from your computer to the DE 542 by following the Print Specifications.
- Call the Taxpayer Assistance Center at 1-888-745-3886 to obtain a form.
- Create your own form with all of the required information.
- Visit your nearest Employment Tax Office.
Mail or fax your paper DE 542 form to:
Employment Development Department
P.O. Box 997350, MIC 96
Sacramento, CA 95899-7350
- What do I do if it is difficult to determine when the contract will equal or exceed $600 or if there is no set contract amount?
If you are unable to determine when total payments made equal or exceed $600, you may estimate the dollar amount of the contract and check the box on the Report of Independent Contractor(s) (DE 542) that indicates "ongoing." If there is no set contract amount, you may report when the aggregate payments in a calendar year equal or exceed $600 and check the "ongoing" box.
- If the cost of parts and materials is included in the contract or payments, is this cost included in determining if the $600 threshold has been met?
Yes. If either the contract amount or amount paid includes the cost of parts or materials, that cost is to be included in determining whether the service-provider has been paid $600 or more.
The information you provide to the EDD will increase child support collection by helping to locate parents who are delinquent in their child support obligations.
A service-recipient may be charged a penalty of $24 for each failure to report within the required time frame, unless the failure is due to good cause. If the failure to report is an intentional agreement between the service-recipient and service-provider to not supply the required information or to supply a false or incomplete report, a penalty of $490 may be charged.
- Do I report independent contractors who work in another state or if my business is not in California?
Under California law, "service-recipients" must report "service-providers." By definition, a service-provider is an independent contractor who provides services (rather than goods) to a business or government entity; a service-recipient must meet one of these three criteria:
- Does business in California.
- Derives trade or business income from sources within California.
- In any manner in the course of a trade or business is subject to the laws of California.
If your business/government entity meets one or more of the three service-recipient criteria, you must report independent contractors whose services are performed for any of your business operations that also meet at least one of the three criteria.
Your business is headquartered in California and, therefore, meets one of the service-recipient criteria. Your California office hires an independent contractor (IC) who lives and works in New York. You must report this IC to the EDD since the IC performs services for your California business operation.
Your business is headquartered in California and, therefore, meets one of the service-recipient criteria. You also have a business operation in Massachusetts. The Massachusetts location hires a Massachusetts-based IC to perform janitorial services in Massachusetts. You do not have to report this IC to the EDD since the IC performs services for a business operation that does not meet any of the service-recipient criteria.
Your business is headquartered in North Dakota and has a branch office in California that uses ICs. Those ICs should be reported since the California office meets the service-recipient criteria. However, if the North Dakota office hires an IC to perform services for the North Dakota location, those services would not be reported because the IC performs services for an office that does not meet any of the service-recipient criteria.
Your business is headquartered in Indiana and does not have any branch offices in California. Your business registered with a California state agency to have independent sales agents (ICs) sell your products in California. You must report these ICs to the EDD since they perform services for a business operation deriving income from California and subject to some California laws, thereby meeting two of the service-recipient criteria.
Yes. According to the U.S. Department of Health and Human Services, Connecticut, Iowa, Maine, Massachusetts, Minnesota, New Hampshire, New Jersey, Ohio, and the territory of Guam require some sort of independent contractor reporting.
No. There are no reciprocal agreements between the states for this purpose.
- If my business contracts with a service-provider that is a corporation, general partnership, or limited liability company, must this service-provider be reported?
No. The legislative requirements only call for the reporting of service-providers who are individuals working as independent contractors. In general, independent contractors who are sole proprietors are to be reported to the EDD.
- My service-provider is a sole proprietor and has a federal employer identification number (FEIN) and business name. Can I report their FEIN instead of their Social Security number (SSN)?
By statute, you are required to obtain the first name, last name, and SSN of any service-providers that are sole proprietors. The federal Form W-9 was recently revised and now requires sole proprietors to list their first and last names. You may want your service-providers to complete new Forms W-9. If the SSN is still not known after reviewing the W-9, ask the service-provider for the SSN.
- If my business contracts with a service-provider on more than one occasion during a year, are the individual contracts cumulative in reaching the $600 reporting threshold? Also, if I report a service-provider during the year and then enter into another contract that again calls for at least $600 in compensation, must the service-provider be reported a second time?
The threshold for requiring reporting is $600 in a year on an aggregate basis. Therefore, you would only report once a year for each service-provider, and there is no basis to require reporting each time a service-provider receives $600 in a year.
- My business doesn’t have employees. Do I have to register with the EDD solely for the purpose of reporting my service-providers?
No. Service-recipients who are not registered with the EDD are not required to register and receive a California employer payroll tax account number solely for the purpose of reporting independent contractor service-providers. Unregistered service-recipients complete the Report of Independent Contractor(s) (DE 542) using their Social Security or federal employer identification numbers.
- For purposes of independent contractor reporting, must the contract be in writing or would a verbal contract also qualify?
A contract may be either written or verbal.
- My business engages the services of a worker who is my acknowledged employee, and I reported this employee under the New Employee Registry when first hired. This same worker also performs work for my business as a valid independent contractor and receives a federal Form 1099-MISC which reflects this compensation. Must I also report the worker for the independent contractor compensation?
Yes, you must report the worker as an independent contractor.
- If my business engages workers whose services are by statute not in subject employment, should I report the workers as independent contractors to the EDD?
To answer this question, one must first determine if the workers are performing services for the business or government entity as employees or independent contractors. If the workers are engaged as employees, their services would not be reported as independent contractors. However, the business or government entity may be required to report the employees as part of the New Employee Registry (under Section 1088.5 of the California Unemployment Insurance Code) if the requirements of that section are met. When a service-recipient hires workers who are not employees and is required to provide the workers with a Form 1099-MISC, the service-recipient is required to report the workers (service-providers) as independent contractors (under the provisions of Section 1088.8 of the California Unemployment Insurance Code).
- Are churches or nonprofit organizations required to report independent contractors they engage for services?
Yes. Section 1.6041-1(b), Title 26 of the Code of Federal Regulations defines the term "trade or business," which includes churches and nonprofit organizations. Therefore, reporting independent contractors is required.
You can view the code section at www.leginfo.ca.gov/calaw.html. Select “Unemployment Insurance Code,” then select “Search.” The CUIC Table of Contents will appear; the code sections are grouped in numerical order on the right side of the page. Scroll down to “1085-1098,” select the link, and then scroll down to 1088.8.