As a small business owner, you need to report non-employee payments to the IRS. Did you hire independent contractors to do work for you this year? If you paid a contractor $600 or more, you need to know how to fill out a 1099.
Preparation for filling out a 1099 for a contractor
Form 1099-MISC is the information form you use to report payments to contractors. Learning how to prepare a 1099 begins with your accounting records. Before you start your 1099 preparation, you need to gather the information you need to file the form.
Your contact information
You need your business’s information when filling out a 1099. That information includes your business’s name, address, and Taxpayer Identification Number. You probably know your business’s name and address. But, you might need to find a document that shows your Tax ID Number. For example, you can usually find your Tax ID Number on past legal documents and tax forms.
You will need to find the contractor’s completed Form W-9 for Form 1099. Knowing how to prepare 1099 forms is dependent on the Form W-9 information. You should have had the contractor fill out Form W-9 before they completed work for you. If not, ask the contractor for their Form W-9 as soon as possible. The contractor notes their name, business name, Tax Identification Number, and address on Form W-9.
Knowing how to prepare a 1099 means you also need the amount you paid the contractor. You can find that figure in your business records. Cross check the amount recorded in your books with the original invoice they sent you.
How to fill out a 1099
After you collect all the necessary information, how to file a 1099 becomes fairly straightforward. As you fill out the form, you will see boxes labeled either “payer” or “recipient.” Your information goes in the boxes marked “payer.” The contractor’s information goes in the boxes marked “recipient.”
Follow these steps for how to fill out a 1099:
Step 1: Complete the box in the upper left corner with your information. Report your name, address, and telephone number.
Step 2: Under the box from step 1, fill out your Tax Identification Number. If you are a sole proprietor, your Tax ID Number is your Social Security number. If you have a different business structure, use your business’s taxpayer identification number (TIN).
Step 3: To the right of the box from step 2, fill out the contractor’s Tax Identification Number. You can find their Tax ID Number on their Form W-9.
Step 4: Under the Tax Identification Number boxes, fill out the contractor’s information. Found on Form W-9, the contractor’s information includes their name and address.
Step 5: Below the box from step 4 is a box asking for an account number. The account number can be any number that you assign to the contractor. The account number is used to match the 1099 to corrected 1099 forms. Be sure to note the account number in your records.
Step 6: To the right of the box from step 5, there is a box that says “2nd TIN not.” Only check the box if the IRS notified you twice in the last three years that the contractor filed an incorrect TIN.
Step 7: There are several numbered boxes that each report a different type of compensation on the right side of the independent contractor tax form. To file a 1099 for a contractor, use box 7. Box 7 reports non-employee compensation. Write the amount you paid the contractor during the year in box 7.
Sending Form 1099-MISC
Once you know how to fill out a 1099, you need to know where to send the form. You might have noticed that there are several copies for each Form 1099-MISC. The contractor, IRS, and you should all have a copy of the Form 1099.
Here is where you send each part of Form 1099:
- Copy A: The IRS
- Copy 1: The state tax department (if applicable)
- Copy B: The contractor
- Copy 2: The contractor
- Copy C: You keep in your records
Form 1099 Filing Deadline
Send Form 1099-MISC to the contractor and the IRS by the January 31 Form 1099 Filing Deadline.
If you fill out Form 1099, you also need to fill out and send a copy of Form 1096 to the IRS. Form 1096 is a summary form of all the 1099s you file. Show the total amount you paid to contractors throughout the year on Form 1096.
Form 1096 is due on the same day as Form 1099, which is January 31. Attach Form 1096 to the Forms 1099 you send.
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