Even if they’re not a standard employee, those who you’re sending payment to for work completed still require tax forms.
You may have heard of a 1099 form in relation to the ‘gig economy’ – as documents required by those who freelance or work short-term contract jobs on a rolling basis.
But the gig economy roles go beyond that. If you’ve hired a subcontractor for a one-time project, feed work to a connection at a pre-set rate who is not an hourly employee, or work closely with experts you only call in as needed, you probably need to be sending them 1099s each year.
Who gets a 1099
Form 1099-MISC is a tax form required by the IRS for reporting miscellaneous payments made to nonemployees.
The tax form is sent to any vendors or subcontractors that were paid $600 or more in a given year for their services.
They are required 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
- Anyone paid at least $10 in broker payments
- Any payments made to attorneys for work (regardless of if the attorney works for a corporation or not).
Payments made to a corporation do not require a 1099, nor do regular employees as they receive W2 forms instead.
Form 1099-INT is a tax form that shows interest income paid. Any income amount of 49 cents or greater is reportable and taxable, but banks and financial institutions are not required to issue 1099-INT forms for amounts below $10.00.
How to prepare a 1099
Early on when you begin working with someone you’re paying on a project or contract basis, be sure to have them fully fill out a W9 form. The best practice is to request and receive the W9 and have it on file before sending their first payment out.
Later in the calendar year, double-check with your vendors and subcontractors to be sure 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 28 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 the deadlines you’ll need to follow with your bookkeeper or accountant.
- Throughout the year – submit W9s for new vendors as you write checks.
- November 30 – submit any vendor address or names 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.
Once the forms are complete, form 1096 is mailed to the IRS, which has the details and totals of your 1099s. You keep your own Copy C of each 1099, send the recipient Copy B, and send the IRS Copy A.
Filing tax forms for paying your contractors and vendors is not as simple as it could be, but with the right steps in advance and following the right timeline, you can make sure you’re all buttoned up.