If you have a business that provides freelance or contract work opportunities wherein you pay more than $600 to any freelance or contract worker, then it is mandatory for you to complete and file a 1099-MISC form to be submitted to the IRS and the particular contract worker involved. A 1099-MISC form is required to report any miscellaneous income that you pay to any non-employee doing work for you. Any payments to a non-employee that are categorized as fees, commissions, rent, royalties, awards, or incentives will require your business to fill out the form and submit copies to both the Internal Revenue Service or IRS and the particular contract worker on or before January 31st of the year.
- Examine your payments. Before filling up any 1099 tax form, you must first examine your finances if you made payments to any contract worker for the year that exceeded the $600 limit. If you have, then make a list of contract workers and the payments made. Another thing to keep in mind is payment for royalties. If you paid royalties to anyone outside your organization amounting to $10 or more, then you will need to accomplish a 1099-MISC form for that particular person. In any case, make a list of all the people you made payment to including the total amount paid for the year. This way, you will have a reference file when you work on the forms.
- Obtain the 1099-MISC form. The 1099-MISC tax form can be easily obtained by visiting the nearest IRS office or branch. If there is none in your area, municipal and state offices will have the forms available as well. You can download the form as a PDF file as well. You will need Adobe Acrobat Professional or other PDF writing applications to open and edit the form on your computer. To download the form, visit irs.gov and save the form on your computer.
- Fill in the basic information. Basic information like the payer and recipient’s name, address, and telephone number should be written down first. The payer is your business while the recipient is your contract worker or the person you paid. For the payer’s federal identification number, write your employer identification number (EIN) or your business’ Social Security number in the box. For the recipient’s identification number box, encode the Social Security number of your contract worker.
- Fill in the amounts paid. In boxes 1, 2, 3, and 7, encode the relevant payments made to the recipient. Leave the boxes blank if you did not pay anything related to the label on the box. In this case, you will definitely fill up box no. 7 since you hired and paid a contract worker.
- Fill up the federal or state income tax. If you withheld any federal and state withholding taxes from the total payments you sent to your contract worker, enter the amounts in the relevant boxes. Leave this blank if you did not.
- Send the copies to the appropriate parties. Copy B and copy 2 of the 1099-MISC form should be sent to the recipient or contract worker no later than January 31st of the year. Send copy A to the IRS by mail before February 28. Send copy 1 to the state tax revenue office where the contract worker resides. Copy C is for your internal records. Make sure to file this properly for future reference.
The 1099-MISC form is a mandated requirement by the US government to report miscellaneous income that a business paid to a person outside of their organization. However, some businesses accidentally or purposefully forget to report these to save on money and a lot of paperwork. Save yourself from the IRS investigating your business by making sure that you diligently file taxes correctly and on time.