Have you hired an independent contractor to perform services for your company or business? Then you likely need to report their pay to the IRS and to them via form 1099-MISC. The form 1099 is an information return used to help businesses/individuals accurately report their income on their tax returns and provides a mechanism for the IRS to ensure that the income was properly reported.
The form 1099 is an information return used to help businesses/individuals accurately report their income on their tax returns and provides a mechanism for the IRS to ensure that the income was properly reported.
What is a 1099-MISC form? A Form 1099-MISC is generally used to report any payments made to a service provider or contractor. This helps the IRS track how much they can expect in taxes from contractors and those who are self-employed. Because they are technically a ‘business-of-one’ when contracting, independent contractors must handle their own taxes whereas companies automatically withhold for taxes with their traditional, W-2 employees.
There’s also not just one 1099 form, there are a series of forms. For the purposes of this post, we’re focusing on the most common form used to report compensation for services paid to an independent contractor: the 1099-MISC.
What is an independent contractor?
Who files a 1099-MISC form? The company or business owner that makes payments to the contractor for their services is required to report those payments to the IRS and also send a copy to the contractor.
Who receives a form 1099-MISC? The contractor receives a copy for their records and the IRS also gets a copy — either through electronic filing or paper mailing (plus a 1096 form, a transmittal form used just for filing with the IRS using snail mail).
Most corporations don’t get 1099s Another important point to note: you do not need to send 1099-MISCs to corporations. This includes S-Corporations and C-Corporations -- they also don’t receive 1099s. You do need to send 1099s to single-member limited liability company (or LLCs) or a one-person Ltd. But not an LLC that’s treated as an S-Corporation or C-Corporation. Here’s another way to remember:
The $600 thresholdTypically, you are only required to send 1099-MISCs to contractors whom you’ve paid $600 or more that year.
The credit card payment exception
In the case that you’ve paid for services using a credit card or through a third party payment network like Paypal, the rules for 1099-K are applicable for reporting, not a 1099-MISC.
What information do you need for filing form 1099-MISC? In order to file a 1099, you’ll need several key pieces of information about your contractor. Usually, this information is collected by a W-9 form which can be filled out by the contractor before providing work or services.
The most important pieces:
Just to put that in another handy format:
State filing considerations Keep in mind that your state may also have requirements and separate deadlines for reporting 1099s and filing them.