1099-MISC is an important form that misfiling or failing to file will cost you hundreds of dollars. Be sure to inform yourself on your tax duties as a business owner. Here’s everything you need to know.
What is a 1099 Form?
A 1099 Form is an information filing form. It is used to report non-salary income to the IRS for federal taxes. There are many variations of the 1099 form, but the most common form business owners encounter is the 1099-MISC form. Generally, business owners must issue a Form 1099-MISC to any independent contractor they paid more than $600 during the financial year. The 1099 Form is for payments made for your business, and is not required for personal payments for services.
Other types of 1099 Forms are used to report income from miscellaneous payments including state tax refunds, sale of personal property and debt forgiveness.
Who is an Independent Contractor?
An independent contractor is not an employee. Independent contractors are hired on a contract basis to complete a given job or project. If you are an independent contractor, it is not your job to fill out a 1099. If your business hired the contractor and paid them more than $600 in a year, you are responsible for issuing the independent contractor a 1099-MISC form.
How do I know to use the 1099?
The best way to determine if you need to issue the 1099 is using a W-9 Form. The W-9 form from a vendor will give you information including their Tax ID and their status as a corporation. This is important in determining if the vendor is a S or C-Corporation. If they are, they are excluded from the 1099 Form requirement.
Other exceptions include payments for merchandise, telegrams, telephone, storage and similar items. For a complete list of exceptions, please visit the IRS website.
How do I file a 1099-MISC form?
There are two copies of Form 1099-MISC: Copy A and Copy B. If you hire an independent contractor, you as the business must report what you paid them on Copy A and submit it to the IRS. The business is also responsible for sending Copy B to the contractor. When you file Form 1099-MISC Copy A to the IRS, you also must file Form 1096, which tracks every 1099 Form you are filing for the year. When you file a physical form 1099-MISC, you must obtain a physical form and mail it to the IRS.
If you receive Copy B, you do not need to file it with the IRS. Instead, you should claim the income listed on Copy B on your personal income tax return.
What Happens if I miss the Deadline to file?
Missing the deadline to file will result in penalties accrued for every late form. This can become very costly very quick. It is important to understand when you have to file a 1099-MISC Copy A to avoid penalties. The next deadline to file is March 1, 2021 if you file on paper, or March 31, 2021, if you file electronically. It is important to keep an accurate account of these documents well before they are due to be filed.