If you own a small business, you might have paid nonemployee income this year. There are many types of nonemployee compensation, ranging from contractor payments to royalties. If you paid this type of income, you might be required to file Form 1099. What is IRS Form 1099?
What is IRS Form 1099?
Form 1099 is a tax form used to report certain kinds of income to the IRS. As a small business owner, you use the form to report irregular income that you paid during the year. Often, irregular income is paid or received in uneven increments.
These are the basic principles of IRS Form 1099:
- Irregular, nonemployee income is subject to tax laws
- The government tracks irregular income with Form 1099
The IRS measures irregular income by matching information on Form 1099 to individual tax returns that are filed. From Form 1099, the IRS determines tax liability and tax refunds for people with nonstandard income sources.
If you paid irregular income this year, you might need to report it using IRS Form 1099. There are many variations of Form 1099. You use the type of 1099 that corresponds to the type of income you want to report. Often, you will use IRS Form 1099-MISC to report nonemployee income.
IRS Form 1099-MISC
Form 1099-MISC is one of the most common types of Form 1099. You use Form 1099-MISC to report payments made to nonemployees for their services. Usually, a nonemployee doing work for your business is an independent contractor.
Did you have any independent contractors do work for your business? If so, you might need to file Form 1099-MISC.
Independent contractors are not employees. You don’t pay payroll taxes for a contractor’s payment. But, contractor wages are still subject to taxes. Form 1099 indicates to the government that the contractor will pay all payroll taxes.
You must file IRS Form 1099-MISC if you paid a contractor over $600 in irregular wages during the year. You report the income to the contractor and the IRS.
Contractors use Form 1099-MISC to file their individual tax returns. Throughout the year, people who get 1099 payments might receive several Form 1099s. The forms can come from different businesses.
Who receives 1099-MISC?
You should fill out a 1099-MISC for nonemployees that you paid $600 or more. For example, payments could be made to independent contractors, attorneys, or accountants. You must also use the form to report royalties you paid worth $10 or more.
Irregular income is different than employee wages. You do not report regular wages earned as an employee on Form 1099. Instead, you fill out Form W-2 for employees you paid.
There are many other payments that do not need to be reported on Form 1099-MISC. You do not have to send Form 1099 for personal payments that you made. A 1099-MISC should only be used for payments made for your business. Other exemptions include payments made to corporations, payments for merchandise, and business travel allowances given to employees.
The IRS Instructions for Form 1099-MISC provide more specific information on other exemptions and who should receive a 1099.
When are 1099-MISC forms due?
You must file Form 1099 by the correct due date.
Contractors should receive a 1099 by Jan. 31 for income earned the previous year. There are several copies included in each 1099. You will send Copy B to the contractor for their records. And, you also send contractors Copy 2 so they can file their state income tax returns when it’s required.
Submit Copy A to the IRS by Jan. 31. When you submit 1099s to the IRS, you must also send Form 1096. Form 1096 is the summary form of all the 1099s you file. You will include the total amount of all your 1099 payments on Form 1096.
Sometimes, you need to submit Copy 1 to your state’s tax department. Filing regulations vary from state to state. Check with your state’s tax department to find out your specific requirements.
Keep Copy C of the 1099 for your records.
The Form 1096 and Form 1099 filing deadline is Jan. 31.
|Copy of Form 1099-MISC||Where to send|
|Copy A||IRS, with Form 1096|
|Copy 1||State department, if applicable|
|Copy B||Independent contractor|
|Copy 2||Independent contractor|
|Copy C||Keep in your records|
What information do you need to file a 1099-MISC?
Before an independent contractor begins work for you, have them fill out IRS Form W-9. Form W-9 can be viewed, filled out, and printed from the IRS website.
On this form, workers provide important filing information, like their address and Taxpayer Identification Number (TIN). The TIN can be their Social Security number or Employer Identification Number (EIN). Form W-9 also includes the contractor’s name, address, and contact information.
Where do you get the 1099-MISC?
You can view Form 1099 on the IRS website. But, that form is for informational purposes only and cannot be used to file Form 1099. Do not print and send Form 1099 from the IRS website.
To get the official 1099 form, order it on the IRS website or from a registered supplier (e.g., an office supply store).
How do you correct Form 1099-MISC?
If you discover an error on a 1099-MISC, you need to prepare a corrected 1099-MISC. You also need a new 1096 for every 1099 correction you submit.
To correct the form, fill out another 1099 and 1096 with the corrected information. Check the “corrected” box at the top of the 1099. Then, send the corrected copies to the contractor, the IRS, and required state departments.
Other types of 1099 forms
There are many types of 1099 forms besides Form 1099-MISC. Here is a list of other common types of 1099 Forms:
Use this form to report interest paid during the tax year. The form breaks down the most common types of interest.
The person or entity that made the interest payment fills out 1099-INT. Usually, that is the bank. Banks fill out Form 1099-INT for investors who had interest payouts over $10.
You would receive 1099-DIV if your investments paid dividends last year. Dividends include the profits that are regularly paid to shareholders. Form 1099-DIV is only for dividends.
Usually, you use 1099-G to report unemployment income. This form includes income from state or federal governments. 1099-G can also include tax refunds received the previous year. You use this form to note payments such as agricultural subsidies and government grants.
Use 1099-R to report the distribution of retirement income. Using this form does not automatically mean the distributed income will be taxed. The income is only reported. Your tax liability depends on how you deposited the money.
Use this form for debt forgiveness or cancellation. A lender fills out this form if the debt being forgiven or canceled is more than $600.
Some common methods to forgive debt include a short sale or home foreclosure. The sale results in a difference between the home’s value and the amount already paid. Or, you could do a settlement with a creditor. With a settlement, you pay less than a full amount owed.
Use 1099-S to report proceeds from the sale of real estate. For most people, Form 1099-S comes into play after the sale of a home.
The form also applies to nonhome real estate that is considered permanent. Permanent, nonhome real estate includes commercial buildings, under-developed land, airspace, and condominium units.
This form is used to handle online payment processors. This form requires payment processors (e.g., PayPal) to report income paid to individuals over the year.
Help with IRS Form 1099
Form 1099 is a broad-ranging form that covers many types of irregular income. We have included the most common forms, but there are more types of Form 1099. You might need an accountant to help you decide which Form 1099 you should file or receive.
Record all 1099 payments in your small business bookkeeping. Your financial records will help you fill out IRS Form 1099.
Do you need an easy way to pay contractors? Patriot’s 1099 software lets you print unlimited 1099s and pay an unlimited number of contractors. You get free, U.S.-based support. Try it for free today.