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1099 Basics

If you are a business paying for work or services done by independent contractors rather than by your employees, you probably have to issue Form 1099-MISC every year. This is an annual reporting form which you provide to both the contractor and to the IRS. You must give a 1099 to each contractor to whom you pay $600 or more in total during the calendar year. You must also file all 1099s along with Form 1096, with the IRS.

Who receives a 1099-Misc? The form should be issued to anyone who provides services to your business, if they are operating their own business as a sole proprietor, LLC or partnership. You do not have to issue 1099s to corporations. Nor do you have to issue 1099s for services done for personal rather than business purposes. For example, if you pay $600 or more to a cleaning service for your business, you would give them a 1099. You would not give a 1099 to the cleaning service that takes care of your home.

Note: Employers sometimes try to save money by treating employees as independent contractors, to avoid payroll taxes. The IRS has strict guidelines about the differences. If you wrongly classify an employee as a contractor you could be subject to fines and penalties for unpaid payroll taxes. (Read about employees vs. independent contractors here.)

What if I don’t issue 1099s? If you fail to issue 1099s for a given tax year, or fail to file the 1099s and Form 1096 with the IRS, you could be liable for penalties for each contractor for whom you failed to prepare a 1099. Late filing penalties apply for each 1099 that you fail to file on time and can accumulate quickly, especially if you pay many contractors. For 2015 filings, the penalties are:

·        $30 per 1099 if you correctly file late but within 30 days (by March 30);

·        $60 per 1099 if you correctly file late between March 31 and August 1;

·        $100 per 1099 if you file after August 1 or you do not file at all.

What is Form W-9? Form W-9 provides basic information about your independent contractors, such as name, address, federal ID number, and what form of business entity they are. Your business should make a policy of getting a completed Form W-9 from every independent contractor who works for you, before you give them their first payment in a calendar year. You keep the W-9 forms in your own files as part of your 1099 records. You can download a blank W-9 form from the IRS website by clicking here: Form W-9 PDF.

What are the 1099 filing deadlines? All 1099 forms for each calendar year must be completed and distributed to the contractors by January 31 of the following year. The IRS copies of the 1099s and the reporting form 1096 must be mailed to the IRS by February 28. You can also file the 1096 and 1099s electronically with the IRS by March 31.

Where do I get 1099 forms? The 1099 is a multi-part form, so you cannot just copy it off the IRS website. You must complete the original paper forms in multiple copies for yourself, the contractor and the IRS. You can request blank 1099 forms from the IRS, or you can purchase them from many retailers that sell office supplies or bookkeeping supplies.

We also prepare 1099s for our clients, so if you think you will need 1099s, please call our office.

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