Whether you are a contractor or an employer utilizing the services of an independent contractor, it is essential to pay attention to the way taxes are handled. While contractors are not by definition employees, an employer still needs to issue a 1099 MISC to all eligible contractors. If you are not sure who’s a qualified contractor or how to issue a 1099 MISC, keep reading, and we will show you.
Who Needs a 1099 MISC?
Any contractor that gets paid $600 or more during the year must be issued a 1099 MISC. Contractors will need a 1099 from every client that they are working for that has paid them at least $600. These forms enable contractors to keep track of how much they have earned and allow them to file their taxes. You can think of a 1099 as the equivalent of a W2 in the world of contracting. The difference is that typically taxes are not withheld. The contractor will need to pay up when they file their taxes.
How to Issue a 1099 MISC
Issuing a 1099 is relatively simple. But, before you can issue a 1099 MISC, the contractor will have needed to fill out a W9. This needs filled out when the contractor first starts working for you. You must mail out all 1099 MISC forms by January 31st. Missing this deadline can result in significant fines from the IRS. Alternatively, you can hand-deliver the form if that is an option.
Now that all the technical stuff is out of the way let’s talk about how to issue a 1099. First, you will need an official form from the IRS. You can order one for free from the IRS, download if from the IRS website, or purchase one at a local supply store.
Once you have your form, simply fill out all of the fields on the form. Make sure all of the information is correct, such as names, addresses, social security numbers or employer identification numbers (EIN), and dollar amounts.
You Also Need a Form 1096
In addition to the 1099 forms sent out to each contractor, you should also file a Form 1096. This form simply sums up the totals from all your 1099 MISC and is what you will send to the IRS with each 1099 MISC. You will also want to keep a copy for your records.
Stay On It
Now that you know the ins and outs of who needs a 1099 and how to issue one, you need to make it a priority to get them done and on time. Not issuing a 1099 MISC can result in hefty penalties. Make sure you have contractors fill out a W9 from the start and be meticulous about getting those 1099 forms out and postmarked no later than January 31st. The process is a piece of cake as long as you follow the guidelines. Make your own 1099 using our form generator.
Need a real time saver? Check out our pay stub generator!