If you’ve paid more than $600 to a contractor, person, or company during tax year 2021, you will need to know what 1099 forms are and how to file them. Your payees use 1099 Forms to report their income on their tax returns, so you shouldn’t overlook this important task. This in-depth guide on how to file 1099 forms will tell you everything you need to know.
What are 1099 Forms?
IRS Form 1099 is an informational return that includes details on payments made to individuals or entities that don’t qualify as traditional wage-based employees. These forms list the identity of the payee, the total payments, and other information.
You must file a 1099 Form for every individual or entity you paid more than $600 during the year. This includes any services performed by anyone who is not your direct employer.
For example, you hire a contractor for a web-design project and pay him $1,200 for the work. You would need to report this payment on a 1099 form. A 1099-MISC or 1099-NEC form will need to include the payer and payee’s:
- Full name
- Street address
- Telephone number
- Tax identification number
- Total payment amount in the appropriate field
The recipient’s name, address info, and tax identification number must also be included. The IRS uses this information to collect taxes on non-employment income.
Why Are 1099s Important for Business Owners?
IRS 1099 forms are important for business owners because all tax deductions from contractors must be supported with the appropriate 1099s.
If you don’t file these forms properly, you won’t get the maximum deduction you could’ve received.
It’s also important to understand that the IRS has penalties for any business owners who don’t file 1099 forms. If you don’t file the necessary 1099 forms, the penalty is $250 for each form.
In the event that these forms are filed late, the penalty can be anywhere from $50-$100 per form.
IRS Criteria for Issuing 1099 Forms
The set of criteria that the IRS uses to determine who a 1099 form should be issued to includes:
- Must be a U.S. taxpayer
- Must earn at least $600 in everything from non-employee income to health care payments
- Anyone who earns at least $10 in broker payments or royalties
How to Issue 1099 Forms for Your Contractors
You have to issue separate 1099 forms for each qualified contractor fitting the above-listed criteria. Make sure that the IRS and contractor each receive a copy of the form to ensure consistency.
When you fill out a 1099 Form, you must report the total of all payments to the independent contractor on Copy A. Then, you send that copy to the IRS. Use the same information to fill out Copy B, and send that to the independent contractor in question.
Can I Print My Own 1099 Forms?
If you’re wondering where to get 1099 forms, they are available on the IRS website. While the IRS website has 1099 tax forms that you can download and print, keep in mind that the Copy A form that’s available on the IRS website can’t be scanned by them, which means that it won’t be accepted. In fact, a penalty could be imposed if you send a form that can’t be scanned by the IRS.
Copy B of the 1099 form can be downloaded and printed from the IRS website since it only needs to be sent to the independent contractor. To obtain a Copy A form that can be officially scanned, you will need to order these forms from the IRS website. Once you’ve made your order, the forms will be sent through the mail to the address you provided.
Can You Handwrite 1099 Forms?
It’s technically possible to handwrite a 1099 form. However, the IRS states that the handwriting will need to be completely legible with black-ink block letters to ensure that processing errors don’t occur.
Types of 1099 Forms
While there are many different types of 1099 forms, the two most common types of 1099s for small businesses are 1099-MISC forms and 1099-NEC forms.
This form covers any income that doesn’t fit into the other categories of 1099 forms. For instance, if you won a prize of $1,000 at a casino, you might receive a 1099-MISC form reporting the additional income.
Starting in the 2020 tax year, certain types of income typically reported on 1099-MISC forms will transition to 1099-NEC forms. If your business worked with a contractor and paid them more than $600 in the tax year, you should report the payments using a 1099-NEC.
Non-employees are usually independent contractors who are working on a contract basis for a company. Writers, web developers, and graphic designers are non-employees who usually receive 1099-NEC forms.
How to File 1099 Forms With the IRS
Before you file a 1099 form with the IRS, make sure that you obtain the necessary information about each independent contractor you’ve hired during the tax year. This information includes:
- Total payment amount
- Legal name and address
- Their taxpayer identification number, which is usually their social security number
Fill out all the necessary information and submit your 1099 forms directly to the IRS. You can either mail them or send them digitally.
However, if you plan on mailing 1099-NEC Forms, you have to use the proper forms, so make sure you’re prepared by securing them in advance.
What is the Deadline for 1099 Forms to Be Mailed?
You must send your 1099 Forms to the IRS by January 31. If you use the mail, the IRS will use the postmark to determine when you submitted your forms. For e-filed 1099s, the IRS receives them the same day you send them.
1099 Forms for Contractors: Closing Thoughts
You almost always need to file a 1099 Form when you hire a contractor for extended work. These forms allow the IRS to understand how to tax non-employee income and compensation.
As long as you have the necessary information, it shouldn’t be too difficult to fill out and complete 1099 forms. Mailing your 1099 Forms is an option, but you should consider e-filing them to make the process quicker and more efficient.
You could incur substantial penalties if you don’t file your 1099 forms on time, so make sure you send them in by January 31, regardless of which method you choose.
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