The 1099 form is an IRS tax form that is used for reporting income other than the salary an individual makes as an employee. The 1099-MISC form reports “miscellaneous income,” meaning any income that does not fall under any of the other 1099 variations. As a business owner, you’re responsible for completing the 1099-MISC form for any independent contractors you’ve worked with in the given tax year, and if you paid a contractor more than $600, you’re required to file a 1099-MISC form with the IRS and provide a copy to the respective individual. Starting in 2020, you’ll file the 1099-NEC for nonemployee compensation. Not filing a 1099-MISC form when required could result in fines or penalties from the IRS.
What Is a 1099 Form?
The 1099 form is, as we briefly mentioned above, an IRS tax form that is used for end-of-year reporting. There are actually multiple versions of the 1099 form, all under the umbrella of what the IRS calls “information returns.” Essentially, this means that 1099 tax forms are used to report different types of income that an individual receives other than the salary they would be paid as an employee. Although there are many variations of the IRS form 1099, the one most relevant to business owners is the 1099-MISC form. In fact, many people use the terms “1099 form” and “1099-MISC form” interchangeably, which we will adopt for the purposes of this guide.
This being said, the 1099-MISC form reports “miscellaneous income,” meaning any income that does not fall under any of the other 1099 variations. As a business owner, you would most likely be responsible for completing the 1099-MISC form for payments you’ve made throughout the year to independent contractors. If you paid a contractor more than $600 in the given tax year, you’re required to file a 1099-MISC form with the IRS, as well as send this document to the individual. The caveat here is if you paid someone through a credit card or a third-party payment network, you won’t send them a 1099-MISC. Instead, the credit card company or third-party payment network may instead be required to send them a 1099-K.
W-2 vs. 1099-MISC Form
If this process sounds familiar, it’s probably because you’re aware that you must file W-2 forms with the IRS for all of your employees in a similar fashion. Similar to the 1099-MISC form, a W-2 reports the income you paid an employee within the given year. However, since employees receive benefits and you deduct taxes from their paycheck, a W-2 reports these deductions as well. Therefore, the important distinction to make is that 1099-MISC forms are completed for contractors—who do not receive benefits or have taxes deducted automatically from their paychecks—while W-2s are completed for employees.
Who Needs to Fill out the 1099-MISC Form?
As we mentioned, as a business owner, you’re responsible for completing a 1099 form for every independent contractor whom you paid more than $600 in the given tax year. You must complete the 1099-MISC form for contractors by January 31 of the following year and provide it to contractors by that date—meaning for the 2019 tax year, the 1099 must be completed by January 31, 2020. Additionally, you must also distribute the 1099 form to recipients (your contractors) by the same date.
Exceptions to Filing the 1099-MISC Form
Although you should expect to report most of your payments to contractors, there are a few exceptions to the rule. You don’t need to issue a 1099-MISC form in these cases:
- To corporations that operate as S-Corp or C-Corp (Note that this doesn’t apply to payments for legal services.)
- Payments for telephone, freight, storage, and other similar merchandise
- Payments of rent to real estate agents or property management
If you’re unsure of whether or not you need to complete a 1099 form for certain payments your business made, double-check the requirements. Not filing a 1099-MISC form when required could result in fines or penalties from the IRS. You can refer to the IRS general instructions for certain information returns for additional explanations on who needs to file. Moreover, you can consult with an accountant or tax advisor who will be able to help you determine what your specific IRS form 1099 responsibilities are.
Where Do I Get a 1099-Form?
There are a few different places where you can get 1099 forms. First, you can find the 1099-MISC form, as well as other versions of the 1099 form, on the IRS website. It’s important to note, however, although you can find the form in this location, you cannot download it, print it, fill it out, and submit it to the IRS. To file the 1099-MISC form physically, you must use an official hard copy. These copies can be ordered from the IRS, as well as purchased from office supply stores.
On the other hand, if you are going to file your 1099 forms electronically, you can utilize the IRS Filing Information Returns Electronically (FIRE) system. To utilize this system, however, you must have a software or service provider (like an accounting or payroll platform) that can create the file in the proper format. You cannot use a scanned or PDF copy of the form to file electronically. With the 1099-MISC form from your software, you can fill the form out online and submit it using the FIRE system. Additionally, some service providers, like Gusto Payroll, for example, will handle completing, filing, and distributing 1099 forms on your business’s behalf.
Form 1099 Instructions
Now that we’ve gone through the basic information answering both “what is a 1099-MISC form” and “where do you get it”—let’s break down our form 1099-MISC instructions. First, if you take a look at the 1099-MISC form, you’ll notice that it consists of five parts. Although each of these parts is asking for the same information, you must complete all five because they each serve a different purpose:
- Copy A goes to the IRS.
- Copy 1 goes to your state tax department.
- Copy B and Copy 2 go to the payee, one for their federal and one for their state return.
- Copy C goes to you for your records.
Gather the Appropriate Information
Again, you’ll be filling out a 1099-MISC form for each independent contractor to who you paid more than $600 to for their work in the given tax year. This being said, you’ll need a few pieces of basic, personal information for each contractor that you can find on their W-9 form. You should have had each contractor you hired to complete this form, just as you do for regular employees with the W-4 form. The W-9 will be able to provide you with your contractor’s:
- Name
- Address
- Exemptions, if any
- Taxpayer identification number (TIN): this could be either their social security number or employer identification nu they have one
In addition to the contractor’s personal information, you’ll also need the amount you paid them during the year. If you use accounting or payroll software, you should be able to generate a report specifically for contractors that will give you all the pay amounts necessary for completing the 1099-MISC form.
Fill in the 1099-MISC Form
With the relevant information described above, you’ll be able to fill in the fields on the 1099-MISC form. To start, you’ll enter your name, address, and phone number in the box in the upper left-hand corner (as seen in the form below). Next, you’ll add your TIN as well as the contractor’s in the appropriate boxes below, again, on the left-hand side of the form. Below the TINs, you’ll add the contractor’s name and address. On the remainder of the form, you’ll see that there are boxes numbered 1-18. Each of these boxes is used to report a specific type of miscellaneous income that falls under the purview of the 1099-MISC form.
For contractors, you’ll only need to complete box 7, nonemployee compensation—filling in the amount that you paid that respective contractor in the given tax year. If, however, you needed to report other miscellaneous income for payments your business made, you would complete the corresponding box on the 1099 form. As an example, if you were reporting fishing boat proceeds, you would complete box 5, as specified on the IRS 1099-MISC form instructions. Again, you’ll fill out all five copies of the 1099-MISC form using this process.
File the 1099-MISC Form
As we mentioned above, each of the five copies of the 1099-MISC form will go to a different entity. You’ll file Copy A with the IRS and as we explained previously, you have the option to file this form physically or electronically. Regardless of how you file, however, you’ll have to do so by January 31. The next page, Copy 1, you’ll file with your state tax department. You can consult the tax agency for your specific state for guidelines and deadlines on how to file there. Copy B and Copy 2 both go to the independent contractor who you’re completing the 1099 form for. Like the IRS copy, you must provide these 1099 tax forms to your contractors by January 31. Finally, Copy C is the part of the form that you’ll keep for your business’s tax and financial records. You can store this copy as you see fit. If at any time you realize that you made an error on your 1099-MISC form, you can easily correct it by filling out a new form with the updated information and note that it’s a corrected form when re-filing. Even if you filed online originally, however, you’ll have to send your corrections in manually.
In conclusion
the 1099 form is an IRS tax form used for reporting income other than salary earned as an employee. The 1099-MISC form reports miscellaneous income that does not fall under any of the other 1099 variations. Business owners are responsible for completing the 1099-MISC form for any independent contractors they have worked with in the given tax year. If a contractor was paid more than $600, the business owner is required to file a 1099-MISC form with the IRS and provide a copy to the respective individual. It is important to note that starting in 2020, businesses must file the 1099-NEC for nonemployee compensation. If a business owner fails to file the 1099-MISC form when required, it could result in fines or penalties from the IRS.
FAQ
What is a 1099 form?
A tax form is used for reporting income other than the salary an individual makes as an employee.
What is a 1099-MISC form?
A form that reports miscellaneous income, meaning any income that doesn’t fall under other 1099 variations.
Who needs to fill out the 1099-MISC form?
Business owners who have paid independent contractors more than $600 in a given tax year.
When is the 1099-MISC form due?
It must be completed and distributed to contractors by January 31 of the following year.
What is the difference between a W-2 and a 1099-MISC form?
A W-2 reports income paid to an employee, including taxes and benefits, while a 1099-MISC reports payments to contractors.
What are the exceptions to filing the 1099-MISC form?
Payments to corporations that operate as S-Corp or C-Corp, certain types of merchandise payments, and payments of rent to real estate agents.
What happens if I don’t file a 1099-MISC form when required?
It could result in fines or penalties from the IRS.
Where can I get a 1099 form?
You can find them on the IRS website or purchase hard copies from the IRS or office supply stores.
Can I file a 1099 form electronically?
Yes, you can use the IRS Filing Information Returns Electronically (FIRE) system if you have a software or service provider.
Can I use a scanned or PDF copy of the form to file electronically?
No, you must use a software or service provider that can create the file in the proper format.