This article has been reviewed by tax expert Erica Gellerman, CPA.
1099 Form Definition
The 1099 form actually refers to a series of IRS tax forms that are used for reporting income other than the salary an individual makes as an employee. Specifically, the 1099-MISC form is the version of the IRS form 1099 that reports “miscellaneous income.” As a business owner, you’re responsible for completing 1099-MISC forms for any independent contractors you’ve worked with in the given tax year prior to 2020. Starting in 2020, you’ll file the 1099-NEC. Like a W-2 for your employees, for each of your contractors, you’ll complete this form, file it with the IRS, and provide a copy to the respective individual.
The end of the year is an extremely busy time and especially so for business owners. Not only are you running your day-to-day operations, but you’re also planning for the upcoming year—and of course, preparing your business taxes. With all of the different tax forms that your business is required to complete, all with similar naming conventions, it can be difficult to distinguish between the various IRS forms and to know what responsibility you have for each one. If your business works with independent contractors, you’re probably familiar with the IRS Form 1099. If this is the first time you’re working with contractors or dealing with tax forms, on the other hand, you may be wondering: “What is a 1099 form?”
The 1099 form is one of these IRS tax forms, like a W-2, that must be completed at the end of the tax year. The 1099 tax form, or in this case, more specifically the 1099-MISC form, reports all of the compensation an individual contractor received from your business during the year. To help you through your tax responsibilities in regards to contractors, we’re going to break down the 1099-MISC form, explain what you need to know about it, where you can find it, and outline how to fill it out and file it with the IRS.
Note that starting in 2020, you’ll be required to report this information on 1099-NEC, nonemployee compensation.
What Is a 1099 Form?
The 1099 form is, as we briefly mentioned above, an IRS tax form that is used for end of year reporting. There are actually multiple versions of the 1099 form, all under the umbrella of what the IRS calls “information returns.” Essentially, this means that 1099 tax forms are used to report different types of income that an individual receives other than the salary they would be paid as an employee. Although there are many variations of the IRS form 1099, the one most relevant to business owners is the 1099-MISC form. In fact, many people use the terms “1099 form” and “1099-MISC form” interchangeably, which we will adopt for the purposes of this guide.
This being said, the 1099-MISC form reports “miscellaneous income,” meaning any income that does not fall under any of the other 1099 variations. As a business owner, you would most likely be responsible for completing the 1099-MISC form for payments you’ve made throughout the year to independent contractors. If you paid a contractor more than $600 in the given tax year, you’re required to file a 1099-MISC form with the IRS, as well as send this document to the individual. The caveat here is if you paid someone through a credit card or a third-party payment network, you won’t send them a 1099-MISC. Instead, the credit card company or third-party payment network may instead be required to send them a 1099-K.
W-2 vs. 1099-MISC Form
If this process sounds familiar, it’s probably because you’re aware that you must file W-2 forms with the IRS for all of your employees in a similar fashion. Similar to the 1099-MISC form, a W-2 reports the income you paid an employee within the given year. However, since employees receive benefits and you deduct taxes from their paycheck, a W-2 reports these deductions as well. Therefore, the important distinction to make is that 1099-MISC forms are completed for contractors—who do not receive benefits or have taxes deducted automatically from their paychecks—while W-2s are completed for employees.
Who Needs to Fill out the 1099-MISC Form?
As we mentioned, as a business owner, you’re responsible for completing a 1099 form for every independent contractor whom you paid more than $600 in the given tax year. You must complete the 1099-MISC form for contractors by January 31 of the following year and provide it to contractors by that date—meaning for the 2019 tax year, the 1099 must be completed by January 31, 2020. Additionally, you must also distribute the 1099 form to recipients (your contractors) by the same date.
Exceptions to Filing the 1099-MISC Form
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 form in these cases:
- To corporations that operate as S-Corp or C-Corp (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
If you’re unsure of whether or not you need to complete a 1099 form for certain payments your business made, double check the requirements. Not filing a 1099-MISC form when required could result in fines or penalties from the IRS. You can refer to the IRS general instructions for certain information returns for additional explanations on who needs to file. Moreover, you can consult with an accountant or tax advisor who will be able to help you determine what your specific IRS form 1099 responsibilities are.
Where Do I Get a 1099-Form?
There are a few different places where you can get 1099 forms. First, you can find the 1099-MISC form, as well as other versions of the 1099 form, on the IRS website. It’s important to note, however, although you can find the form in this location, you cannot download it, print it, fill it out, and submit it with the IRS. To file the 1099-MISC form physically, you must use an official hard copy. These copies can be ordered from the IRS, as well as purchased from office supply stores.
On the other hand, if you are going to file your 1099 forms electronically, you can utilize the IRS Filing Information Returns Electronically (FIRE) system. To utilize this system, however, you must have a software or service provider (like an accounting or payroll platform) that can create the file in the proper format. You cannot use a scanned or PDF copy of the form to file electronically. With the 1099-MISC form from your software, you can fill the form out online and submit it using the FIRE system. Additionally, some service providers, like Gusto Payroll, for example, will handle completing, filing, and distributing 1099 forms on your business’s behalf.
Form 1099 Instructions
Now that we’ve gone through the basic information answering both “what is a 1099-MISC form” and “where do you get it”—let’s break down our form 1099-MISC instructions. First, if you take a look at the 1099-MISC form, you’ll notice that it consists of five parts. Although each of these parts is asking for the same information, you must complete all five because they each serve 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.
Gather the Appropriate Information
Again, you’ll be filling out a 1099-MISC form for each independent contractor who you paid more than $600 to for their work in the given tax year. This being said, you’ll need a few pieces of basic, personal information for each contractor that you can find on their W-9 form. You should have had each contractor you hired complete this form, just as you do for regular employees with the W-4 form. The W-9 will be able to provide you with your contractor’s:
- Exemptions, if any
- Taxpayer identification number (TIN): this could be either their social security number or employer identification number (EIN) if they have one
In addition to the contractor’s personal information, you’ll also need the amount you paid them during the year. If you use an accounting or payroll software, you should be able to generate a report specifically for contractors that will give you all the pay amounts necessary for completing the 1099-MISC form.
Fill in the 1099-MISC Form
With the relevant information described above, you’ll be able to fill in the fields on the 1099-MISC form. To start, you’ll enter your name, address, and phone number in the box in the upper left-hand corner (as seen in the form below). Next, you’ll add your TIN as well as the contractor’s in the appropriate boxes below, again, on the left-hand side of the form. Below the TINs, you’ll add the contractor’s name and address. On the remainder of the form, you’ll see that there are boxes numbered 1-18. Each of these boxes is used to report a specific type of miscellaneous income that falls under the purview of the 1099-MISC form.
For contractors, you’ll only need to complete box 7, nonemployee compensation—filling in the amount that you paid that respective contractor in the given tax year. If, however, you needed to report other miscellaneous income for payments your business made, you would complete the corresponding box on the 1099 form. As an example, if you were reporting fishing boat proceeds, you would complete box 5, as specified on the IRS 1099-MISC form instructions. Again, you’ll fill out all five copies of the 1099-MISC form using this process.
Photo credit: IRS
File the 1099-MISC Form
As we mentioned above, each of the five copies of the 1099-MISC form will go to a different entity. You’ll file Copy A with the IRS and as we explained previously, you have the option to file this form physically or electronically. Regardless of how you file, however, you’ll have to do so by January 31. The next page, Copy 1, you’ll file with your state tax department. You can consult the tax agency for your specific state for guidelines and deadlines on how to file there. Copy B and Copy 2 both go to the independent contractor who you’re completing the 1099 form for. Like the IRS copy, you must provide these 1099 tax forms to your contractors by January 31. Finally, Copy C is the part of the form that you’ll keep for your business’s tax and financial records. You can store this copy as you see fit. If at any time you realize that you made an error on your 1099-MISC form, you can easily correct it by filling out a new form with the updated information and note that it’s a corrected form when re-filing. Even if you filed online originally, however, you’ll have to send your corrections in manually.
The Bottom Line
At the end of the day, although completing tax forms can be time-consuming and tedious, it’s a necessary part of running a business. Luckily, of all the tax forms you’ll have to complete on a yearly basis for your business, the 1099-MISC is one of the shortest and most straight-forward. This being said, however, if you have concerns about your 1099-MISC form responsibilities or questions about completing the form, your best solution is to work with an accountant or tax advisor. These professionals will have the experience to assist you with your processes, ensure that you’re filing correctly and on-time, and hopefully—they’ll free up some time that you can devote to other parts of your business operations. Additionally, if you don’t already do so, you might consider investing in an accounting or payroll software that has W-2 and 1099 form capabilities. These platforms can also save you time, not to mention paper, and will hold all the information you need during tax time in one place.