The 1099 form is a document that reports a person’s income to the IRS. It’s used for reporting certain types of payments, such as interest, dividends, and freelance paychecks. If you get paid more than $600 in total from any one company during the year, they’re required by law to send you a 1099 form at the end of the year — even if you’ve already filed your taxes.
You might have heard the term 1099 form before and wondered what does that mean? This article explains the basics of this type of tax document and how to fill it out.
What Is a 1099 Tax Form?
The 1099 form is one of the most basic forms to track your business income and expenses. It’s also one of the most confusing since there are so many different kinds of 1099 forms.
1099 is used to report income to the IRS that was paid to a person or entity. The IRS uses the information on these forms to help determine how much income tax you owe.
You’ll receive one or more 1099s each year, depending on how much money you made in a given tax year. The IRS requires that companies send out 1099s for any amounts over $600 for services rendered, including rent and interest payments, dividends, and stock sales.
In addition to reporting the total amount of money paid out, 1099 forms also include information about the source (employer or contractor), type of income, and whether it’s from wages or non-wage payments such as dividends or interest earned on investments.
If you’re a small business owner, chances are you’ll be dealing with Form 1099-NEC, so we’ll focus on that one.
What Is a 1099-NEC Form?
A 1099-NEC form is a tax form used to report amounts paid to nonemployees, including independent contractors, freelancers, and other workers who are not covered by social safety net programs such as unemployment insurance. A 1099-NEC is also known as a “nonemployee compensation” form.
For example, if you hire an independent contractor or freelancer to work on your business, you’ll need to work with your accountant or CPA to file these forms annually.
The IRS requires that you report all non-employee compensation, including the payments made to these people. If you fail to do so, you may be penalized by the IRS.
The IRS uses it when they need to track payments made to nonemployees to tax those individuals accordingly. You’ll only get this form if you paid someone who was not an employee of your company at least $600 during the year.
Issuing a 1099-NEC ensures that everyone pays their fair share of taxes on income earned through employment or self-employment.
Independent Contractor Definition
An independent contractor is a worker who meets the IRS criteria for being self-employed, which means the worker is responsible for paying their taxes and has more control over how they perform the work.
Businesses often hire independent contractors to perform copywriting, consulting, accounting, and IT support. They’re not employees because they don’t receive many of the benefits of a traditional job, including health insurance, retirement benefits, and overtime pay.
Who Gets a 1099?
The 1099 Form is a tax form sent to independent contractors, freelancers, consultants, and other nonemployees. The Internal Revenue Service (IRS) requires businesses to issue 1099s to individuals who receive $600 or more in payments during a tax year. Companies are also required to report the gross amount of payments made to contractors on Form 1099-MISC.
If you’re a business owner and hired an independent contractor, and paid them more than $600 over the year, you’re responsible for issuing them a 1099-NEC.
If you worked as an independent contractor for multiple clients during the year, each client would send you Form 1099-MISC at year-end detailing how much they paid you. You must report this income on your tax return if it totals $600 or more.
Who Needs to Fill Out a 1099 Form?
The Internal Revenue Service requires you to file Form 1099s for independent contractors and other parties who provide services to your business.
If you are a business owner and paid out more than $600 to an independent contractor, you need to fill out a 1099 form.
If you’re not sure whether or not you need to file a 1099 Form for your freelancers, look at the following list. If any of these descriptions apply to your situation, then you’ll need to fill out a 1099:
- You paid someone more than $600 for services performed as an independent contractor.
- You paid someone more than $600 for services performed as a subcontractor.
- You paid someone more than $600 for performing services as an attorney or doctor who isn’t incorporated or registered as an LLC.
Why the $600 Cut-off Matters
In the United States, the Internal Revenue Service requires that anyone who pays a vendor over $600 in a year file a 1099-MISC form. This includes freelance writers, photographers, accountants, and other professionals who work as independent contractors.
The requirement is intended to protect both parties from tax evasion by making sure you report all of your income to the IRS. It’s also meant to prevent taxpayers from claiming deductions they don’t deserve.
Skip Filing 1099s for Corporations
If an independent contractor is registered as a C corporation, you don’t need to file Form 1099. You can see whether a contractor is incorporated based on the information on their Form W-9. You can request one of these forms from any contractor when you hire them.
Don’t File 1099s for Employees
The IRS has strict rules for distinguishing between employees and nonemployees. They are always on the lookout for business owners who misclassify workers as independent contractors (typically to avoid paying social security and medicare taxes.)
That said, it is essential that you file a Form W-2 to report wages, tips, and other compensation you paid to an employee during the tax year.
It’s also important to note significant penalties for misclassifying employees as independent contractors.
Don’t File 1099s for Contractors Hired Through Freelance Marketplaces
Freelance marketplaces like Fiverr and Upwork dont provide tax documents because they are technically payment settlement entities. Businesses do not need to offer 1099-NEC forms to workers they hire on these platforms.
Do Partnerships Get a 1099?
In general, if you pay less than $600 per year to an entity involved with your business, it’s not necessary for you to issue them a 1099 form. This includes payments made for services rendered or goods sold. However, there are exceptions to this rule, and it’s best to check with your accountant before deciding whether or not you need to fill out a 1099 Form for your partnerships.
How to File a 1099 Form
There are two copies of Form 1099: Copy A and Copy B.
Copy A of Form 1099 is used to report nonemployee compensation. This includes payments made to independent contractors and prices made to other payees who are not business employees. If you hire an independent contractor, you must report what you pay them on Copy A and submit it to the IRS.
The IRS requires you to file Copy B of Form 1099 for each person or company to whom you have paid nonemployee compensation during the year. You must send Copy B of Form 1099 to your payee by February 1 (for payments made in the previous calendar year).
If you fail to send Form 1099-MISC on time, you may owe a penalty even if the payee does not report your income or fails to file a tax return.
If you’re an independent contractor and receive a Form 1099, Copy B from a client, you do not need to send it to the IRS. You report the income listed in Copy B on your income tax return.
Gather the Required Information (W-9 Request)
You’ll need the contractor’s name and address and their Social Security number or taxpayer-identification number. You’ll also need:
- The total amount you paid them during the tax year
- Their taxpayer identification number
If you don’t have this information, you can use the IRS’s free e-file system for paperless filing with Form W-9S or Form W-9 so that the contractor can provide it to you electronically and avoid having to mail the form back to you by mail.
Once you have all of the required information, you can then use it to fill out Form 1099-NEC.
Submit Copy A to the IRS
Once you have filled out all the required information, Copy A of Form 1099-NEC must be submitted to the IRS by January 31, regardless of whether you file electronically or by mail.
You can download and print a version of Copy A from the IRS website.
Submit Copy B to the Independent Contractor
Once you fill out and submit copy A, you can send Copy B to all of your independent contractors no later than January 31.
You can download and print a version of Copy B from the IRS website and send it to your independent contractor.
Check if You Need to Submit 1099 Forms With Your State
Depending on your business, you may also have to file 1099 forms with the state. It’s best to check with a CPA and ensure you’re compliant with your state’s 1099 filing requirements.
How to File 1099s Online
You can e-file Copy A of Form 1099-NEC through the IRS Filing a Return Electronically (FIRE) system. This form must be produced with the help of compatible accounting software.
You can email Copy B to your contractor, but first, you need their consent.
Consent should be obtained to prove the contractor can receive the form electronically. If you’re planning to email them a copy, you should contact them via email to obtain consent.
When Are 1099s Due? (2023 Deadlines)
Filing Copy A with the IRS is due February 15, 2023.
The deadline for sending Copy B of Form 1099 to your contractors is February 15, 2023.
What if You Don’t Receive the 1099 From a Business?
If you don’t receive a 1099 from a business, you should contact them directly to ask if they sent it. You can use the IRS’s Where To File 1099s tool to determine if a company has listed your Social Security number on their 1099 filing. If they haven’t done so, you may need to call them and ask for it.
What Happens if You Miss the 1099 Filing Deadline?
If you miss the deadline for submitting your 1099 forms, you may be surprised. The IRS is serious about catching taxpayers who fail to report income.
You will have to pay interest on the taxes you owe, but you could also face penalties for late filing and late payment.
You will have to pay the following IRS penalties for each late 1099 form:
- $50 if you file within 30 days
- $100 if you file more than 30 days late but before August 1
- $260 if you file on or after August 1