An easy-to-follow detailed guide for anyone who needs to know how to complete 1099 forms for contractors. We’ll cover the requirements, form types, and deadlines and answer frequently asked questions.
The Tax season is an annual headache for many. And with the deadline approaching fast, the need to understand your obligations becomes all the more pressing. One moment you are busy with your everyday tasks, and the next, you suddenly realize it’s time to get the 1099 forms ready!
As a payer, one of the foremost things you must do is accurately complete 1099 forms for contractors. It involves being aware of the different types of 1099s, determining who needs to be included in this list, how to submit these forms, and meeting all deadlines.
Completing a 1099 form isn’t rocket science once you understand what goes into it. This guide has been put together to simplify that process so that you can breeze through the entire process, no matter your level of accounting experience or taxation knowledge.
So Let’s Get Started!
What Is Form 1099s By IRS?
Before diving deep into the details, let’s understand what 1099 is and why it matters.
Form 1099 is an IRS document that reports payments received from non-employee compensation or other income sources to independent contractors, vendors, subcontractors, and freelancers. This form also reports payments made in exchange for services that exceed $600 during the tax year. These forms are used by both individuals and corporations when filing taxes with the IRS.
The main idea behind the 1099s form is to ensure those doing business with you report the payments they receive. This helps the IRS collect taxes from everyone who earned income during the tax year.
Who All Are Considered As Independent Contractors?
One common confusion among employers is deciding who an independent contractor is. An independent contractor works for you as a freelancer or business owner, not your full-time employee. They must receive payment in exchange for the services they provide, and it must exceed $600 during the tax year.
To understand better, let’s take an example. If you are a Web Designer and hired someone to help you with specific tasks, then they will be considered independent contractors. For you to file 1099, you must have paid at least $600 during the tax year for you to be required to file for them.
It is important to note that the IRS generally considers a person an independent contractor if they are not receiving employee benefits like health insurance, unemployment compensation, etc.
Who Need To File 1099s For Independent Contractors?
Often the question arises of who is responsible for filing 1099. The answer, in most cases, is that it is the responsibility of the payer to file 1099s for any independent contractor they have hired during the tax year. This includes both individuals and companies. But the minimum payment required is at least $600, so if the amount paid to the contractor is less than that, you do not need to file 1099.
Let’s break it down for you with this simple example: Suppose you run a small business and need to hire an independent contractor for several services throughout the year. Now, if you paid this person more than $600 by check or any other form of payment, then it is your responsibility as the payer to file 1099s for them. But if at the same time, you have hired an independent contractor and have paid them only $500, then you do not need to file 1099s for them as the amount paid is less than $600.
Step-By-Step Guide To Completing Form 1099 For Contractors
There’s no doubt that filing 1099s for contractors can be a bit of a hassle. Given you just don’t have to worry about filing the forms but also gathering all the necessary information required to complete them. But don’t worry; we are here to guide you through the process so you can complete the task in no time.
1. Prepare an updated list of all contractors you have paid during the year: The first step is to compile a list of all independent contractors you have paid throughout the year and ensure it is up-to-date before filing 1099s for them. This list should include their name, address, taxpayer identification number (TIN), and the amount you have paid them over the year. It would be ideal for keeping this information stored safely somewhere if you need it for future reference.
2. Gather All The Necessary Information: As a payer, you need to have all the information ready before initiating the filing process of 1099 forms for your contractors or vendors. You need their legal name, TIN, address, and total amount paid over the year. This information should be obtained from the contractors or vendors themselves. Once you have collected all this data, you’re ready to move to the next step.
3. Determine The Form You Need To Use: Once you have all the necessary information, the next step is determining which form you need to use. There are different versions of 1099 forms for different types of services and payments, such as Form 1099-MISC, 1099-NEC, and more. Make sure you select the correct one based on what kind and how much payment was made over the year.
4. Fill Out The 1099 Form: You will now be ready to fill out your chosen version of the 1099 form with all the necessary details gathered in Step 2, most importantly, name and TIN (Taxpayer Identification Number). Make sure to enter all information correctly, including the filing year and your business name, on top of the form. Once that’s done, add up all payments made in a financial year and fill in the amount in Boxes as applicable.
5. Print And Mail The 1099 Form: Now that you have entered all relevant information for your contractor, attach a Copy B version of their 1099 to Form 1096 (the summary report), and mail it to them. This must be done by January 31 of every year, regardless of when payments were made during the financial year. Also, ensure you keep one copy of each form with you, irrespective of whether it was mailed out.
6. Report To IRS: Along with mailing out copies to your contractors, you must also submit a copy of Form 1096 to the IRS. That’s it! You have completed filling out and submitting 1099 forms for contractors. Good luck! Remember that failure to comply with these steps can result in penalties and other complications, so it is important to ensure you are doing everything correctly.
Related Article: 1099-NEC DIY Guide: The Easiest Step-By-Step Guide To eFile 1099-NEC
Things To Keep In Mind While Completing The 1099s For Independent Contractors.
The last thing you want to give your business is a hefty penalty for not completing the 1099s correctly. But we can’t deny that there’s always a chance for errors. To ensure that you are completing the 1099s accurately, here are a few important things to keep in mind:
1. Make sure the contractor is an independent contractor and not classified as an employee: Uber and Airbnb are a few examples of companies that have made this mistake and ended up dealing with its consequences where they mistook the participants in their platform as independent contractors instead of employees and filed incorrect 1099s.
2. Verify their TIN before you start: The wrong TIN might cost you way more than anticipated. So it is important to make sure that the TIN provided by the contractor is accurate and valid. Tax1099 offers an accurate TIN Matching feature that delivers results in just seconds. This feature helps you cross-check the contractor’s name and TIN against the IRS database so that you can verify their identity and make sure everything is in order before processing 1099.
3. Double-check all your entries: You should take a few extra minutes to ensure everything is correct, as mistakes can be costly. Errors in reporting can result in IRS penalties and fines if unreported or inaccurate income amounts are reported on 1099s.
4. File the 1099s form before January 31: The deadline for filing 1099 forms with contractors and the IRS is January 31, so make sure you get it done before then. Don’t risk incurring late fees by submitting the forms after this date!
5. Keep a record of all documents related to payments: It’s important to keep all the documentation related to payments you made to contractors, including invoices and receipts. This will make it easy for you to access information if an audit occurs or a dispute arises.
6. Notify the contractor about their Form 1099: After filing the form with the IRS, don’t forget to provide the contractor with a copy of their Form 1099. This can be done via mail or email, but ensure you get it done properly, so there is no confusion over payments made.
7. Make sure state requirements are met: Remember that different states may have their filing requirements for 1099s. Make sure to research these and make the necessary filings, as needed, to remain compliant with all regulations.
Tax1099: A Perfect Way To eFile Your 1099s
Completing the 1099 forms for contractors can be lengthy, but it doesn’t have to be. Tax1099 makes filing and completing your 1099s easy! Simply upload the necessary information, and you are done in no time. Here are our top features that businesses like you can take advantage of:
1) Bulk Upload: We understand that businesses have to file 1099s for many contractors. With Tax1099, you can upload your entire list of contractor details in one go–all from the comfort of your office!
2) 100% accurate TIN Verification: The penalty for single form errors can be steep, but with Tax1099, you don’t have to worry about that. We use our advanced technology to ensure 100% accuracy on any TIN numbers entered into the system.
3) Tax1099 API: Our API integration makes it easy for businesses to send or receive data from Tax1099. This means that you can file 1099s without ever leaving your software platform!
These are just the beginning of the many advantages Tax1099 offers payers looking to complete 1099s for contractors. With our platform, you can be sure that all your 1099 forms are completed accurately and tax law compliant every time. Invest in Tax1099 today and find out why thousands of businesses trust us!