If you’re self-employed or your small business hires contractors, you may have heard of the 1099 Tax Form. What is it? What is the form used for? In this article we'll cover everything you need to know!
What is Form 1099?
Form 1099 is a tax form that an individual may receive if they need to report non-salary income to the IRS. Usually this non-salary income is made throughout the year, outside of regular salary (if applicable).
If you are a small business owner and hire independent contractors, you will be required to fill out 1099 forms and send them to your payees no later than the beginning of February.
What is Form 1099 used for?
1099 forms are used to determine both how much income a person receives throughout the year and what kind of income it was. Depending on what kind of income you received, you will report the type of income in different places on your tax return.
Who must file a Form 1099? Who must receive a Form 1099?
If your small business hired independent contractors or partnerships and you paid them more than $600, you will be required to send them a 1099 Income Form.
Typically you will receive your 1099 form from a financial institution or your employers. Keep in mind that your form will have your SSN or taxpayer identification number on it so the IRS will know when you received money and will know if you fail to report that income on your tax return.
What are Forms 1099-NEC & 1099-MISC?
The most popular type of 1099 forms that your small businesses will need to complete and send out are the 1099-NEC and 1099-MISC.
The 1099-MISC form reflects the money that does not fit in typical 1099 forms such as prizes and awards, which are classified as miscellaneous income.
The 1099-NEC form is more common and is required by the IRS to report money compensated to individual contractors or any other self-employed workers who received payments of more than $600 throughout the entire year. This information will verify your income and federal income tax level monitored by the IRS.
Who will not need a Form 1099 from my small business?
Active employees do not need a 1099 form and the IRS makes a strict distinction between employees and contractors. Business owners who fail to report employees can be charged with harsh penalties for avoiding payment of social security and medicare taxes. You will need to file a W2-form for individuals listed as employees of your small business.
Small businesses will not need to file a 1099-NEC form to freelance contractors that were hired from freelance marketplaces such as Fiverr or Upwork. These contractors will be included in the marketplace's payment settlement entity.
If your independent contractor is listed as a c-corp or s-corp worker, your small business does not need to file a 1099 form for them.
How to file a Form 1099 for your Small Business
When you file a 1099, there are two copies made, Copy A and Copy B. The copy A form is for your small business to report the independent contractor's income to the IRS. You will then pass along the Copy B form to your contractor.
As an independent contractor, you will not need to report your copy B form to the IRS, but you will need to report the income on your personal income tax return.
Next Steps?
Need help with filing 1099s? Book a call with us, we can help determine what you need to have a successful tax season!
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