The Southern California Accounts’ Complete Guide to Filing a 1099
Despite COVID-19, tax season is still upon us. Now, it might be delayed this year with a filing date of July 15, but that doesn’t mean it’s too early to get your paperwork gathered.
If you’re a small business owner or work as an independent contractor, the form you need to know about is the 1099 form.
You might be wondering about filling out a 1099 form. Perhaps you are wondering when you should do it and for who. Read on to get your answers!
What is a 1099 Form?
The 1099 form is a form required by the IRS to report non-salary income for tax purposes. There are twenty different versions of the 1099 form. The most widely known form is the 1099-MISC.
The 1099-MISC form is used to identify payment to an independent contractor.
There are a number of other ways to make a profit that would require the use of the 1099 form when filing your taxes. These include:
- Tax dividends
- Interest income
- Prize winnings
- IRA distributions
- State tax refunds
- Personal property sales
- Credit card debt forgiveness
The most common 1099 form though is the 1099-MISC which is the form used to report money paid to independent contractors.
Who Is Considered an Independent Contractor?
An independent contractor is any person you hire to do work. They are not an employee but instead are contracted to do work for payment.
If the person is hired through a service provider as an independent contractor, you most likely would not be responsible for giving them a 1099-MISC form.
The magic number is $600. At or above $600 is the IRS required amount to complete a 1099-MISC form.
An example of this: hiring a website builder to work on tech business set up. The work they do is very simple and the average cost for such a service is $487. In this case, you would not need to give them a 1099 form.
If you hire an independent painter to come and paint your office for a cost of $1,200, the painter would need to be issued a 1099-MISC form because the amount is more than six hundred.
So, any contractor or independent worker who is not a direct employee of yours that you paid $600 or more would get a 1099-MISC form at the end of the calendar year.
When NOT to File a 1099 Form
There are a few scenarios where someone does work for you and they would not get a 1099 form.
The most obvious is if they are one of your employees. If you hired them and they regularly report to work under your supervision, you would be required by the IRS to withdraw federal and state taxes from their check and report their employment to the IRS.
You would also give them a W-2 form at the end of the year.
The other time to not give a 1099 form is if the contractor you hire is an S or C corporation. If the contract employee has created a corporation you would not give them a 1099 form. They would be required to report the income through their own corporate tax returns.
How to File a 1099 Form
So, now you know if you need to file the 1099 form, let’s take a look at how to go about actually doing the filing.
There are the A copy and the B copy of the 1099-MISC form. Copy A gets filled out and is sent to the IRS to report the amount paid to the contractor. Copy B is filled out identically and is given to the contractor.
The IRS will expect the contractor to report the income listed on the 1099 Copy B form to them.
How will the IRS know who the contractor is? You need to gather some information from the contractor to put on the 1099 form. In most cases, you ask the contractor to complete a W-9 form.
The W-9 form gives you the contractor’s:
- Full name
- Business address
- Taxable identification number
The taxable identification number, usually the social security number, is how the IRS identifies this person for tax purposes.
Additional Forms: Form 1096
Wait, 1096? You are not confused. So far, we have covered the 1099. But there’s another form your business needs to know about related to the 1099 form.
Once a business completes Copy A and Copy B of the 1099 form and files them with both the IRS and the contractor, they also need to complete a 1096 form.
This is a part of the financial accounting that the IRS holds a business to do. They complete the 1096 form documenting all the 1099 forms they’ve completed over the course of the previous year.
1099 Due Date Requirements
The 1099 forms are done for each calendar year. So, for 2019, the forms must have been completed by January 31, 2020, to give to contractors.
Depending on how the business files their taxes will depend on when the forms are due to the IRS. There is a different due date depending on if the business files electronically or by paper. Check with your tax service provider to confirm the due date.
It’s also worth noting, the 1099 form is changing in 2020. Make sure if you are completing a 1099 form for a contractor you use the correct year’s form.
Additional Forms: 1099-DIV and 1099-INT
As previously mentioned, there are some additional reasons beyond being a contractor that a person might get a 1099 form.
The 1099-DIV form is used to report dividends and distributions that may have been paid out during the calendar year from stock investments or mutual funds.
The 1099-INT form is used to report interest paid from accounts. If you have an interest-bearing account at a bank, the bank would need to report the interest using a 1099-INT form.
Contact WNDE, Irvine CPA, For Your Tax Preparation Needs
As a business, it’s important to know when you are required to report payments to another individual. Filling out a 1099 form is necessary when you have contracted independent workers.
If you have tax-related questions or need help for your business with your tax planning and preparation, we can help. Contact us to learn about our tax and business-related services.