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What is Form 1099-MISC?
Form 1099-MISC is the most common type of 1099 form. 1099-MISC is a variant of IRS Form 1099 used to report taxable income for individuals that are not directly employed by the business entity or individual making the payment. For example: contractors. It can also be used to report royalties, prizes, and award winnings.
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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 reportincome 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.
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1099-MISC in a Nutshell
Form 1099-MISC is the most common type of 1099 form. Companies useit to report income earned by people who work as independent contractors ratherthan regular payroll employees.
The IRS requires businesses to file a copy of the 1099 form withthem and mail another copy directly to the independent contractor so that theIRS 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, andawardsover $10.
When Do YouNeed to Send a 1099-MISC Form to Service Providers?
It can be a bit confusing to know exactly when you need to sendthe form. The IRS stipulates that a business isresponsible for sending a1099-MISC form when someone provides “rents, services (including parts andmaterials), prizes and awards, or other income payments.”
But “someone” is not justanyone.The followingconditions 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 installsyournew bathroom. But if you are running a bed and breakfast that is aregistered company, you are generally required to send 1099-MISC forms toworkers 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 tomail a 1099-MISC form to independent contractors who did work for your company.
That doesn’t meanthe contractors are absolved from payingtaxes on that income. It simply means you have no official obligation toprovide that information to them.
They are Independent Contractors, not Employees.
The IRS distinguishes one from the other by using threedifferent criteria:
- Behavioral control:Does your company have aright 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 aworker’s job? In other words, do you decide which expenses are reimbursed orwho provides necessary tools and supplies?
- Contractual Relationship:Is there a writtencontract? Are benefits such as pension, insurance, and vacation or sick days apart of that contractual obligation?
When these three criteria are met, the IRS considers the workeran employee of your company, and you are responsible for filling out a W-2 andpaying your share of the FICA taxes.
If these criteria are not met, the worker is an independentcontractor who is responsible for paying their own taxes. These individualsreceive a1099-MISC.
The Service Provider is a Pass Through Legal Entity.
You are not required to send a 1099-MISC to every individual whodoes work for your company as an independent contractor.
Incorporated businesses— i.e., businesses that are legallyconsidered separate entities and that file taxes as such — do not receive1099-MISC forms. Neither do limited liability corporations (LLCs) that elect tobe 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 foryou by January 31 of the year after they provided services. For instance, if acontent provider wrote your website in 2017, the date for sending their1099-MISC form would be January 31, 2018.
You have a little extra time to mail the IRS their copy of theform. They must receive it by the last day of February if you are mailing in yourtaxes or by March 31 if you are filing electronically.
You’ll generate at least three copies of the form:
- Copy Agoes to the IRS. If your state has income tax, you will also need to send Copy 1 to the appropriate state tax department.
- Copy Bgoes 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 Cis for your records.
What are the main things that go on this form?
The 1099 MISC Form is pretty simple to fill out. It generally includes …
- Your name, address and taxpayer ID number
- The name, address and taxpayer ID number of the company or individual who issued the form
- The amount of income paid to you during the year in the appropriate box, based on the type of income you received
- The amount of federal or state income tax withheld on that income, if any
What are the most common mistakes to avoid?
Unfortunately, there are a number of mistakes to avoid that contractors sometimes make with 1099 Forms.
- Misunderstanding the different Form 1099 altogether
- Not writing off all business expenses
- Not keeping appropriate records
- Counting expenses more than once
- Not reporting all your income
- Not filing on time
Do I need to use a lawyer, accountant or notary to help me?
You may think you need one, but it is not necessary to hire lawyer, accountant or notary to help you create the 1099-MISC Form. You can easily and accurately do it online. Doing it this way you can save considerable money, particularly if you have to create many.
Why use our Form 1099 MISC generator?
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Form 1099-MISC FAQs
- Who must have a 1099-MISC form?
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 IRS also 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.
- When must a 1099-MISC be sent to contractors?
The forms must reach the independent contractors who worked for you by January 31 of the year after they provided services.
- Do contractors receive a 1099-MISC for all payments?
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.
- Do I send 1099-MISC forms to businesses that I pay?
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.
- How do I file Form 1099-MISC?
The 1099-MISC Form generally includes:1. Your name, address and taxpayer ID number2. The name, address and taxpayer ID number of the company or individual who issued the form3. The amount of income paid to you during the year in the appropriate box, based on the type of income you received4. The amount of federal or state income tax withheld on that income, if any
- How is Form 1099-MISC different from a W-2 form?
Independent contractors are issued a 1099-MISC form. Employees are issued W-2 forms.
- Where do I mail 1099-MISC forms to the IRS?
You mail 1099-MISC forms to one of three different IRS locations, depending on your principal business location. To find the correct address, see the IRS General Instructions for Informational Returns, Section D.
- Where do I report 1099-MISC income on my tax return?
Income on a 1099-MISC form is added to other sources of income on your Form 1040, personal tax return. You must pay taxes on all income received, whether or not you receive a 1099-MISC form.
- Can I create Form 1099-MISC online?
The easiest way to correctly complete and verify the Form 1099 MISC is to use special services like Form Pros. It does not require the installation of additional software, and it saves you time and money.
