Beginning January 1, 2001, California's Employment Development Department (EDD) requires any person or company that receives services from an unincorporated independent contractor — and that would file a Form 1099-MISC with IRS at the end of the year — to file a DE 542 (Report of Independent Contractors) almost as soon as the contract begins.
Your deadline for filing this form is twenty (20) days of either making payments of $600 or more to each 'service provider' or entering into a contract for $600 or more with such an entity, whichever is earlier.
And you thought filing IRS' Form 1099-MISCs and the associated Form 1096 once a year was a hassle?
EDD says that the information it gathers is used to "assist state and county agencies in locating parents who are delinquent in their child support obligations". In light of the fact that EDD conducts twice as many contractor-reclassification audits each year as IRS, though, you might be wondering whether they'll also use this information to further scrutinize independent-contractor tax law compliance and intimidate companies into using fewer 1099ers.
The DE 542 form defines an independent contractor as "an individual who is not an employee of the business for California purposes and who receives compensation or executes a contract for services performed for that business either in or outside of California."
Synergistech's advice: be safe rather than sorry. If you contract on a 1099 basis and aren't incorporated, download the DE 542, print it out (it's in Acrobat format), and give it to your client with the 'service provider' section filled in. And if you pay anyone else on a 1099 basis (eg, your accountant, bookkeeper, childcare provider, even your kids), or subcontract any services to someone who's not incorporated, keep this form handy too.