Your business is responsible for providing tax forms to anyone you compensate, including contractors and other non-employees. The IRS form 1099-MISC is the most common non-employee tax form. It is used to report miscellaneous payments to contractors, experts, attorneys and vendors.
Who gets a 1099?
1099 forms are commonly discussed in relation to the gig economy, which refers to people who freelance or work temporary jobs on a regular basis. However, even if you hire a subcontractor for a one-time project, delegate work at a pre-set rate to someone who is not an employee, or work with an expert for advice on a problem, you need to send them a 1099 every year. They are required to be sent under the following circumstances:
- A contractor paid at least $600 (in one year) for services
- A vendor paid at least $600 in rent
- Someone paid at least $600 in prizes
- Someone awarded at least $600 in award money
- Anyone paid at least $10 in royalties, interest or broker payments
- An attorney paid at least $600 (in one year) for services
Payments made to a corporation do not require a 1099, nor do regular employees, because they receive W2 forms instead.
How to prepare a 1099
When you start working with someone on a project or contract basis, immediately have them complete a W9 form. The best practice is to request and receive the completed W9 before sending their first payment. This allows you to collect all the information you need for tax season. Later in the year, confirm with your vendors and subcontractors that their addresses have not changed.
If a vendor or contractor has not provided a W9 form, or you have an incomplete one, you can withhold 24 percent of their pay and send it directly to the IRS – this is known as backup withholding. If you don’t have a completed W9 form, if you are audited, those payments could be removed as expenses and you will be assessed tax on the total, which could include penalties and interest.
To complete the 1099s on time for tax season, here are some deadlines to follow:
- Throughout the year – submit W9s for new vendors as you write checks
- November 30 – confirm contractor addresses and submit changes to your accounting agency, along with W9s not previously sent in
- January 10 – have all December monthly work (check detail, sales information, bank/credit card statements, etc.) submitted
- January 25 – deadline to submit vendor information to have 1099s electronically filed by the taxing authorities’ deadline of January 31
You keep your own Copy C of each 1099, send the recipient Copy B, and send the IRS Copy A. Once the forms are complete, mail form 1096 to the IRS. A 1096 has the totals of your 1099s.
Filing tax forms for paying your contractors and vendors can be complicated, but by taking these steps and following this timeline, you can be prepared. If you still need help understanding non-employee tax forms or other tax preparation, contact the experts at Gift CPAs!
To meet with a Gift CPAs professional and get personalized advice about taxes, or to learn about our other services, contact us to make an appointment. We look forward to meeting you virtually or at one of our five locations in Harrisburg, Mechanicsburg, Myerstown, Ephrata or Lancaster!