A Small Business Owner’s Guide to the 1099-MISC Form

Lucy DeLaney

Lucy DeLaney is a digital content specialist for TaxSlayer, a tax preparation and financial technology company headquartered in Augusta, Georgia. #SlayIt

Latest posts by Lucy DeLaney (see all)

If you’re a small business owner who has hired contract employees, you’re required to send them a Form 1099-MISC. This is an IRS tax form that reports income paid to contract employers.

There are several versions of this form, including Form 1099-MISC for miscellaneous income. If you paid an individual or a business more than $600 in a single tax year, you should start getting your paperwork ready because you’ll owe them a 1099-MISC form.

Who Do I Need to Send a 1099-MISC Too?

If you paid someone $600 or more for contract work, you need to send them a 1099-MISC, reporting their income in box 7. The other boxes are used to report the following miscellaneous income:

  • Box 1 – Rents
  • Box 2 – Royalties
  • Box 3 – Other income (Prizes and Awards and Medical Research)
  • Box 4 – Federal income tax withheld
  • Box 5 – Fishing proceeds
  • Box 6 – Health care payments
  • Box 7 – Services performed by someone who is not your employee
  • Box 10 – Crop insurance proceeds

If you are sending someone a 1099-MISC, you must submit the form to the payee by January 31 of the year after they worked for you.

If you’re in doubt about whether you should send a 1099-MISC, it’s better to be safe than sorry. Not sending a form can result in fines and penalties from the IRS.

Exceptions to Filing a 1099-MISC

Although you should expect to report most of your payments to contractors, there are a few exceptions to the rule. You don’t need to issue a 1099-MISC in these cases:

  • Corporations that operate as S-Corp or C-Corp (but note that this doesn’t apply to payments for legal services)
  • Payments for telephone, freight, storage, and other similar merchandise
  • Payments of rent to real estate agents or property management  

1099 misc formW2 vs. 1099-MISC

To decide whether you should send a 1099-MISC or a W-2, look at your relationship, behaviors, and finances. For example, if you are hiring someone for a full-time, salaried position with benefits like vacation pay or insurance, then you must send them a W-2. If the person works for you on a contract basis, you do not pay them benefits, and you don’t pay a portion of their Medicare and Social Security taxes, then send them a 1099-MISC.

What Information Do I Need to Fill out a 1099-MISC?

When someone works for you on a contract basis, you should have them fill out Form W-9. This documents their name, exemptions, address, social security number, and taxpayer identification number (TIN) if they have one. This will give you all the necessary information to fill out their 1099-MISC at the end of the year. Then fill in the total amount you paid them in the corresponding box.

How Do I File a 1099-MISC?

Use the information from the person’s W-9 to fill out the required personal information, then enter in the wages you paid them.

If you file online, you can use the Filing Information Returns Electronically (FIRE) system through the IRS. If you choose this option, you must file Form 4419 at least 30 days before January 31.

If you mail in your 1099s, submit Form 1096 to tell the IRS how many 1099s you will send to contract workers.

1099 misc form

Why Does the 1099-MISC Form Have Multiple Parts?

Form 1099-MISC has five parts so that you can send the information to multiple groups. Each copy serves a different purpose:

  • Copy A goes to the IRS.
  • Copy 1 goes to your state tax department.
  • Copy B and Copy 2 go to the payee, one for their federal and one for their state return.
  • Copy C goes to you for your records.

Where Do I Find Form 1099-MISC?

If you typically file electronically, you can fill the form out online.

If you don’t have software to help you file it online, you must mail it in. Do not download and print a copy from the web. You must order an official hard copy. You can also find them at your local office supply store.

What If I Need to File a Correction?

Mistakes are easy to make, but luckily Form 1099-MISC corrections are fairly easy to issue. If you filed a paper 1099-MISC, simply make the 1099 correction on a new form and note that it’s a correction when sending it in. If you filed electronically, you still have to file a correction manually via paper.

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Sending contractors a 1099-MISC is a must, but it doesn’t have to be a headache. If you run into trouble, contact a tax preparer or contact the IRS for guidance.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

Lucy DeLaney

Lucy DeLaney is a digital content specialist for TaxSlayer, a tax preparation and financial technology company headquartered in Augusta, Georgia. #SlayIt

Latest posts by Lucy DeLaney (see all)

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