All About 1099 Tax Form


The Internal Revenue Service (IRS) is relatively easy to work with. The tax season is particularly stressful for business owners, leading many to seek solace in a kickboxing class or other form of physical activity. The following are ten of the most often asked questions (and their explanations) about 1099 forms by small businesses.

How do I fill out the 1099? The Internal Revenue Service (IRS) issues 17 unique versions of Form 1099. Regarding reporting payments to contractors and independent service providers, the 1099-MISC is the most crucial form for small business owners to fill out. Still, you should check out the other sixteen 1099s to see if you'll be required to submit those as well.

Who determines whether an individual is an employee or an independent contractor? The distinction between employees and independent contractors has blurred a bit as the number of people working for themselves has increased. Let's imagine you employ a web developer, and then, once the site is up and running, you decide to keep them on staff to handle future updates and maintenance. Is this person now considered an employee or a contractor? This distinction does not hinge on whether or not an employee is paid hourly, full-time, or anything else.

The IRS uses three criteria to make distinctions.

How one sees the connection between the two parties: The Internal Revenue Service may side with you and your contractor if you argue that your relationship is more like that of employer and employee. You may misclassify a contractor as an employee if you exercise significant financial control over how they run their business.

Behavioral management: Most contractors complete their work in the way that works best for them. A contractor might be deemed an employee if you tell them how to execute their work and they comply.

Which types of payments require disclosure? Payments to freelancers, whether writers, web designers, or even the person you hired to mow your lawn, are the easiest to track and report. However, a few additional items must be reported on the 1099-MISC.

Reimbursements to sole proprietors or partnerships that performed work for you. Services like these tend to be provided by individuals rather than a formal business entity Rent payments, whether for an office, warehouse, or another type of property, must be reported on Form 1099-MISC. An IRS Form 1099 must be sent for cash prizes worth more than $600.

Payments for a freelancer's healthcare or medical bills should be included on their 1099. Any payment made to an attorney requires a Form 1099, regardless of whether or not the attorney is incorporated.

Just tell me the dates I need to know.

All 1099 forms must be submitted to contractors by January 31 through the mail, email, secure website, or carrier pigeon. If December 31 falls on a weekend, you have until the next business day to get it to your contractors.

There are two due dates to remember while filing with the Internal Revenue Service. By February 28, if you're filing paper, you should have sent your 1099s. By March 31, you can submit your 1099s electronically. If I paid freelancers via electronic means, do I still need to file 1099s?

The rules around this issue could be clearer, contributing to the widespread confusion surrounding this matter. Suppose you pay a contractor or service provider more than $20,000 in a single year and make more than 200 payments to that contractor using an electronic payment service like PayPal or a credit card. In that case, the payment service will issue a 1099-K, and you will not be required to produce a 1099-MISC.

Keep in mind, though, that both preconditions must be met. If you pay a contractor $25,000 in a year via PayPal but only pay them in 12 installments rather than 200, you will need to issue 1099 instead of PayPal.

So what if I forget and have to file late?

The IRS will still assess penalties for late Form 1099 submissions, no matter how many times you are sorry. The penalty for filing your taxes after the February 28 deadline varies from $30 to $100 per form (up to a maximum of $500,000). It is calculated using the IRS's standard late filing fee schedule.

Do non-American workers receive 1099s? Any independent contractor you hire to perform services in the United States, regardless of their citizenship, should be issued a 1099 form. However, if the service is performed outside of the United States by a foreign national, a Form 1099 is not required.

In which locations may I acquire 1099s? The IRS requires specialized paper for its 1099 forms, so you can only print as many as you'd like from a downloadable PDF. Your 1099 paperwork