Create Flawless1099-MISC Forms – Every Single Time
As a small businessperson, you’ve probably hired your share of self-employed individuals. And if you’re being honest, you may have been tempted to forego documenting that pay – even if you claim it as a deduction on your business taxes.
We understand the temptation. Knowing when and how to report income you paid to an independent contractor can be tricky.
But order to protect your business in the event of an IRS audit, it’s important to generate timely and accurate 1099-MISC forms every year.
It doesn’t have to be a difficult chore. Using an online fillable form allows you to download information instantly and generate professional PDF forms in just a few minutes’ time.
Read on to learn more about when to use the 1099-MISC form and how to fill out the various fields.
1099-MISC in a Nutshell
Form 1099-MISC is the most common type of 1099 form. Companies use it to report income earned by people who work as independent contractors rather than regular payroll employees.
The IRS requires businesses to file a copy of the 1099 form with them and mail another copy directly to the independent contractor so that the IRS can predict how much tax revenue to expect from self-employed individuals.
The 1099-MISC serves as an informational reminder of how much an independent contractor earned from each company they provided services for and gives them an official form to attach to their 1040 return, in lieu of the W-2.
The 1099-MISC is also used to report royalties, prizes, and awards over $10.
When Do You Need to Send a 1099-MISC Form to Service Providers?
It can be a bit confusing to know exactly when you need to send the form. The IRS stipulates that a business is responsible for sending a 1099-MISC form when someone provides “rents, services (including parts and materials), prizes and awards, or other income payments.”
But “someone” is not just anyone. The following conditions must apply in order for you to need to send 1099-MISC forms out.
You Are a Business.
You don’t send a 1099-MISC to the plumber who installs your new bathroom. But if you are running a bed and breakfast that is a registered company, you are generally required to send 1099-MISC forms to workers who perform the same labor, as this is a legitimate business expense.
The Income is Above the Official Threshold Amount.
Under the threshold limit of $600, you are not required to mail a 1099-MISC form to independent contractors who did work for your company.
That doesn’t mean the contractors are absolved from paying taxes on that income. It simply means you have no official obligation to provide that information to them.
They are Independent Contractors, not Employees.
The IRS distinguishes one from the other by using three different criteria:
- Behavioral control: Does your company have a right to control what the worker does and how they perform the job?
- Financial control: Does your company have a say in the material aspects of a worker’s job? In other words, do you decide which expenses are reimbursed or who provides necessary tools and supplies?
- Contractual Relationship: Is there a written contract? Are benefits such as pension, insurance, and vacation or sick days a part of that contractual obligation?
When these three criteria are met, the IRS considers the worker an employee of your company, and you are responsible for filling out a W-2 and paying your share of the FICA taxes.
If these criteria are not met, the worker is an independent contractor who is responsible for paying their own taxes. These individuals receive a 1099-MISC.
The Service Provider is a Pass Through Legal Entity.
You are not required to send a 1099-MISC to every individual who does work for your company as an independent contractor.
Incorporated businesses — i.e., businesses that are legally considered separate entities and that file taxes as such — do not receive 1099-MISC forms. Neither do limited liability corporations (LLCs) that elect to be treated as corporations for tax purposes.
What Is the Deadline for Sending out 1099-MISC Forms?
The forms must reach the independent contractors who worked for you by January 31 of the year after they provided services. For instance, if a content provider wrote your website in 2017, the date for sending their 1099-MISC form would be January 31, 2018.
You have a little extra time to mail the IRS their copy of the form. They must receive it by the last day of February if you are mailing in your taxes or by March 31 if you are filing electronically.
You’ll generate at least three copies of the form:
- Copy A goes to the IRS. If your state has income tax, you will also need to send Copy 1 to the appropriate state tax department.
- Copy B goes to the independent contractor, and you may also need to send them Copy 2 so that they can file it along with their other state income tax materials.
- Copy C is for your records.