Business owners tend to be confused about when and how to file the 1099 tax form. The confusion usually arises from not knowing the requirements and rules associated with the filing.
In this article, our tax consultants will explain all you need to know about filing the 1099 form and explain when 1099s need to be issued.
Form 1099-MISC Explained
A 1099 form documents specific types of non-employment income the taxpayer has earned in a given year. The earnings could be dividends from owning stocks or interests received from bank accounts.
A 1099 form is a vital tax document because it keeps track of income that doesn’t pertain to the person’s wage or salary. If this document isn’t filed duly, neglected, or inaccurate, the IRS could slam a penalty fee or resend the form.
Form 1099-MISC is a 1099 Form issued to persons who aren’t on your actual employee payroll, such as freelancers, LLCs, independent contractors, sole proprietors, etc. It is sent to employees who have received a minimum of $600 for rendered services in awards, prizes, materials, etc. This form reports all the payments you have made during your trade within a particular period.
The Rules for Issuing 1099-MISC
You must issue a 1099-MISC form to your vendors on or before January 31. After that, you need to compile the form and send it alongside 1096 to the IRS on or before 28. You can also submit the 1099 form electronically before or on March 31.
If you hired a foreign worker residing outside the US during the stipulated period, you’d need to issue a 1099 form. You have to verify the worker’s status and confirm that they executed all the work outside the US jurisdiction.
When Are You Not Required to Issue 1099
Some instances require you not to issue 1099 to workers or report miscellaneous payments. Let’s look at some of them below.
Personal Payments
Personal payments, such as purchasing a household item, renovations, or babysitting, are exempted from getting reported. Form 1099 is for business payments only. So, you don’t have to give an account of how you run your home.
Payments to Corporations
You don’t need to issue a 1099 form to corporations except for lawyers from registered law firms. Real estate agents/property managers also don’t need 1099 form issuance.
Payments Less Than $600
As already discussed by our tax team, 1099 is for reporting payments above $600 and not below.
Payments to Freelancers
If you seek the services of a freelancer from sites like Upwork, you don’t need to serve 1099 since it is a third-party service.
How to Find out If You’re Required to Issue 1099
Below is what you should know.
1. Purpose of Payment
Not all payments warrant 1099. Outgoing payments that demand this are; payments to a lawyer, rents, healthcare, bills, interests, royalties, outsourced services, broker payments, etc.
2. Who Were You Paying?
A 1099 form is issued to a payee like sole proprietors, independent contractors, partnerships, and business firms who received more than $600 from you within a year.
3. Amount to Pay
Payments below the $600 threshold don’t need a form 1099-MISC.
Backup Withholding
If you or the contractor is guilty of backup withholding, you issue 1099, regardless of the amount you paid them.
How and When to File Form 1099-MISC
You can file form 1099-MISC on or before January 31. Typically, submission is next month. Unfortunately, the MISC forms aren’t downloadable. You have to order them from the IRS and pick them up at an IRS-approved center or post office[1].
Other Form 1099
Form 1099-K
This form is for documenting payments received via payment networks like PayPal.
Form 1099-C
The form is served to entities that lend money for debt cancellation.
Form 1099-CAP
Form 1099-CAP is sent to shareholders after receiving cash or stock in a transaction.
Form 1099-DIV
Companies that pay dividends must report their payments on this form.
Form 1099-S
Payments involving the sale of a primary residence are reported on this form. However, you mustn’t issue the form if the transaction is below the $250k threshold or if the government is the transferor.
Form 1099-INT
This form reports received interest payments above $600.
FAQ
How do I know if a vendor needs a 1099?
A vendor needs a 1099b form if they have received above $600 in a year as an independent contractor, sole proprietor, or LLC.
Do I have to issue a 1099 to a contractor?
You have to issue a 1099 form to a contractor if you’ve paid them above $600 in a year.
Conclusion
If you want to avoid getting entangled with the IRS, you must file the correct claims for your business. It includes knowing when to issue 1099s and how to do it.
Thankfully, our tax professionals have provided you with all the answers you need. You don’t have to worry over whether you filed appropriately or not.
