Payments to Directors and Independent Contractors
Payments to directors and independent contractors are not treated as compensation. Rather, they are miscellaneous payments that are deductible as a business expense. Since they are not compensation, they are not subject to employment taxes. However, you must report nonemployee compensation of $600 or more on Form 1099-MISC (see Appendix A).
Individuals who work for their corporations and also serve as directors may receive both salary (as an employee) and self-employment income (as a director). Such individuals may be able to reduce the tax on directors’ fees by setting up retirement plans based on this self-employment income. For a discussion of whether a worker is an employee or an independent contractor, see Business Organization, Chapter 1.
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