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