Independent Contractor Payments

It is crucial that the University of Iowa correctly identifies and pays both employees and independent contractors. The tax laws covering independent contractors are complex. Before determining how to treat payments for services, it is necessary to understand the business relationship that exists between the University of Iowa and the person performing the service. If the individual is not an independent contractor, payment for services through Payroll Services may be more appropriate.

Employers who misclassify workers as independent contractors can face substantial tax bills and penalties imposed by the Internal Revenue Service (IRS) for failing to pay employment taxes and failing to file required tax forms. 

The IRS uses three common law characteristics to determine the relationship between businesses and workers, as explained in IRS Publication 1779 (pdf):

• Behavioral control
• Financial control
• Type of relationship

Payroll Services, guided by IRS and University of Iowa policies and procedures, must examine the entire relationship, consider the extent of the right to direct and control the worker, and weigh all these factors when determining whether a worker is an employee or independent contractor. No single factor stands alone in making this determination and factors relevant in one situation may not be relevant in another. 

Independent Contractor Information Form

Departments must complete the  Independent Contractor Information Form (ICIF) before hiring a service provider requesting independent contractor status who will be paid using a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). An authorized University of Iowa departmental representative must complete the form with the service provider before services begin.

The completed form should be submitted to Payroll Services accompanied by a detailed description of the services to be rendered, a comprehensive list of job duties, and, if available, a draft or proposed contract. This documentation will be used to assess whether the nature of the engagement meets the criteria for independent contractor status or more closely aligns with that of an employee under federal and institutional guidelines. Payroll Services will return the approved form to the initiator within three business days of receipt.

Submitting Invoices for Payment

Once Independent Contractor status has been approved, payment for services should be submitted on a Services Voucher in the e-Pro System.  Use this form when paying an individual:

• Who is paid on their Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN).
• Who has provided a service.
• Who is not employed or associated with the University of Iowa.

Commonly provided services include:

• Guest speaker or guest presenter (not affiliated with the University of Iowa)
• Guest artist or guest performer (not affiliated with the University of Iowa)
• Writing
• Editing
• Professional services such as attorneys, accountants, or other consultants
• Commissioned artwork
• Peer review
• Sports officials, announcers, commentators for intercollegiate athletic events

If the payment will be $25,000 or more, please refer to the PSA policies and procedures  on the Purchasing website.   Speaker engagements and honorariums above $25,000 do not require a PSA based on the nature of the service.

To learn more about Services Vouchers, please visit the eVoucher Accounts Payable wepage or view the Services eVoucher guide.

Services Vouchers Required Information:

• Name, address, and SSN or ITIN of the person providing service. (Payments should be made directly to the individual providing the service, not to a third party).
• Payment requests must be made out to the name that belongs to the SSN or ITIN.
• Citizenship information.
• Specific information about the service provided.
• IACT in the 6000 series, excluding those for Travel 6025-6064.

 Services Voucher Required Documentation:

• Approved Independent Contractor Information Form along with email notification stating independent contractor determination approval (new vendors)
• IRS Form W-9 or W-8BEN  (new vendors)
• Invoice or similar paperwork identifying services rendered, date service was provided and approved dollar amount is required on all Services Vouchers
• Any other pertinent documentation.

Timing of Payments to Independent Contractors:

The University of Iowa does not prepay Independent Contractors as a general rule. Payment vouchers should be submitted only after services have been rendered and the work is complete.  An exception may be granted for performers or guest speakers when the department intends to hand the contractor a check at the event. In those cases, the department must mark the voucher “check held for pickup” and ensure that its cash-handling procedures are followed until the check is delivered. 

Processing & Reporting

Independent contractor services are paid through the Accounts Payable department, not through UI Payroll Services.

U.S. citizens and resident aliens do not have federal, state, and FICA taxes withheld, and a W-2 statement of wages and taxes withheld is not issued. If payment for such services exceeds $2,000 in a calendar year (to be adjusted annually for inflation), a 1099-NEC income form is issued for tax purposes. Nonresident aliens will have the required federal tax withheld and a 1042-S tax statement will be issued.