When your business works with an independent contractor or freelancer, it is often necessary to provide him or her with a 1099 form at the end of the tax year. Specifically, the purpose of a 1099 is to report income to the IRS that has been paid to an independent contractor; this way, the IRS is aware of the income and can collect self-employment and other taxes on it accordingly.
If you worked with an independent contractor this past tax year, there are some things you need to know about these forms to stay in compliance with the IRS and avoid issues when you file your business taxes.
1. Different Types of 1099s
Begin with an understanding of the many different types of 1099 forms. The two most commonly used by businesses that work with independent contractors are the 1099-K and the 1099-MISC. The 1099-K is designed to report third-party network payments (such as those issued over a service like PayPal). Other miscellaneous payments, on the other hand, may be better suited for reporting on a 1099-MISC.
2. When to Provide One
Not sure whether you have a legal obligation to provide a 1099 form to an independent contractor? In general, you are required to provide this form to any independent contractor or freelancer to which you have paid at least $600 over the course of the tax year. If you paid out less than $600 to this individual, then you are not required to report it on a 1099 (however, the contractor is still required to report the income and pay taxes on it accordingly).
3. Filing Deadlines for 1099 Forms
Submitting 1099 forms to independent contractors must be done no later than February 1 each year. These forms can be sent out via snail mail or electronically. If sending out via snail mail, the postmark date should be no later than February 1. Failure to provide these forms on time could result in penalties for businesses.
4. Where to Submit Completed 1099 Forms
In addition to providing a copy of a 1099 form to each independent contractor to which you paid at least $600 in the given tax year, businesses are also required to file a copy of the form with the IRS. The deadline for submitting a copy of each 1099 to the IRS is March 1 (if submitting by mail) or March 31 (if submitting electronically).
Looking for Help With a 1099?
As you can see, there’s a lot to keep in mind when it comes to 1099 tax forms. From knowing which type of form you need to complete to knowing when these forms need to be submitted and filed, many business owners struggle with 1099s.
If you could use a little assistance with your 1099 forms or any other aspect of your business tax preparation, our experienced team at Counting House Associates is here to help. Contact us to find out more about what we can do for your business!