How to File 1099-MISC for Independent Contractors
Wondering how to file 1099-MISC? As the tax season approaches, filing 1099-MISC Forms accurately is essential for business owners and employers that have hired independent contractors. In 2020, the IRS introduced a significant change with the introduction of Form 1099-NEC (Nonemployee Compensation), which separated nonemployee compensation reporting from Form 1099-MISC.
Filing tax forms like Form 1099-MISC and Form 1099-NEC is an essential responsibility for businesses that engage independent contractors. In this guide, we will explain how to properly file Form 1099-MISC for independent contractors in 2024 and discuss the key differences between Form 1099-MISC and Form 1099-NEC.
What is a 1099-MISC Form?
1099-MISC is a tax form used by the IRS to track all the miscellaneous income paid to individuals or businesses, including rents, royalties, and reporting various other types of payments in the course of their trade or business. While it previously included nonemployee compensation (1099-NEC), this changed with the introduction of Form 1099-NEC.
What is a 1099-NEC Form?
Form 1099-NEC is specifically designed to report nonemployee compensation, which includes payments made to independent contractors, freelancers, and other service providers who are not considered employees. This form is used to report payments of $600 or more for services provided during the tax year 2023. Learn how to fill out a 1099-NEC form effortlessly with our expert guide.
1099-MISC vs 1099-NEC
What Are the Different Types of 1099 Forms?
Since there are many types of 1099s, which are used for different purposes, the 1099-MISC form used to be a catch-all for all miscellaneous income. But not now since the introduction of 1099-NEC for reporting the payment paid to independent contractors. 1099-MISC is now used by business owners to report payments such as rents, and royalties, and reporting various types of payments.
However, the different types of 1099 forms are 1099-NEC, 1099-A, 1099-B, 1099-C, 1099-CAP, 1099-DIV, 1099-G, 1099-H, 1099-INT, 1099-K, 1099-LTC, 1099-MISC, 1099-OID, 1099-PATR, 1099-Q, 1099-R, and 1099-SA.
What is a 1099-MISC form used for?
You must file 1099-MISC if you made a payment of at least $600 for the following services during the tax year:
- Rents
- Other payments, including prizes and awards
- Fishing boat proceeds
- Medical and health care payments
- Crop insurance proceeds
- Payments to an attorney
- Payments for fish purchase
A minimum of $10 in royalties or broker payments as an alternative to dividends or tax-exempt interest. It is also used for reporting payments made from selling consumer products of at least $5,000 to buyers for non-store resale.
Form 1099-MISC Copies
Copy A: Federal Copy for filing with the IRS
Copy B: Recipient Copy (Sent to Independent Contractor)
Copy C: Payer Copy (Retained by the Employer)
Copy D/1/2: State and local filing (Depends on States Tax Rules)
Parts of Form 1099-MISC
Form 1099-MISC is used to report various types of income other than wages, salaries, and tips. It’s important to note that as of tax year 2020, some categories of payments that were previously reported on Form 1099-MISC have been moved to Form 1099-NEC. However, Form 1099-MISC still includes several boxes for reporting different types of income. Here are some key parts of Form 1099-MISC along with the corresponding types of payments:
How to File 1099-MISC?
The following steps will help you in filing Form 1099-MISC without any concerns.
Step 1: Collect Accurate Information Beforehand
Once you make a payment to independent contractors, ensure you make them complete the Form W-9 to collect the contractor’s legal name, address, and Taxpayer Identification Number (TIN). The Taxpayer Identification Number may be either a Social Security Number (SSN) or an Employer Identification Number (EIN). IRS recommends business owners and employers store W-9 files for at least four years for future reference.
PRO TIP: Always make the contractors fill out and return W-9 once you engage them for the services for your business.
Step 2: Buy Your 1099-MISC Forms
Once you collected the correct information about your independent contractor, then get IRS-approved 1099 Forms and the accompanying Form 1096, which is the Annual Summary and Transmittal of U.S. Information Returns. You can order standard 1099-MISC Forms from CheckMark. You can also order the forms from IRS but it may take up to 4-6 weeks to reach you. You can even buy the forms at any office supply store like Staples or OfficeMax.
PRO TIP: Never use a downloaded PDF format of the 1099 Form from the internet because they are just for sample view and cannot be read and processed by the IRS scanner.
STEP 3: Prepare Your 1099-MISC Forms
Start preparing 1099-MISC forms for independent contractors, once you have bought the 1099 forms. Fill in your Federal Tax ID number (SSN or EIN) and contractor’s information (SSN or EIN) accurately. Fill out Form 1099-MISC accurately using the information you’ve gathered. Make sure to report the payments in the appropriate boxes based on the type of income. If you’re using tax software, it will guide you through this process.
Since 2020, the IRS introduced Form 1099-NEC specifically for reporting non-employee compensation (such as fees, commissions, and other forms of compensation for services) that was previously reported on Form 1099-MISC in Box 7. So, if you’re reporting nonemployee compensation, you should use Form 1099-NEC instead of Form 1099-MISC for those payments.
Finally, fill out the contact information forms. If you have to file 1099s for multiple contractors, then repeat the same process until all the forms are completed without any errors. To file the 1099s pretty accurately, it’s always better to use 1099 software, which can automatically generate and file the information to the IRS without any errors and blunders.
PRO TIP: In case you have withheld any amount from the contractor (backup withholding), then you need to fill that specific amount in Box 4 concerning any federal or state income tax you withheld.
STEP 4: Send Copy B of 1099 to the Independent Contractor
Now, send the 1099 Copy B to independent contractors whether via postal mail or hand them personally. The deadline to send the 1099-MISC Forms to the independent contractors is no later than January 31, 2024.
PRO TIP: Never delay sending the forms to independent contractors because the IRS may impose heavy penalties for late distribution if there is no genuine reason.
STEP 5: Prepare Form 1096
If you are filing on paper, complete Form 1096, which serves as a summary of all the Form 1099-MISC forms you’re submitting. It includes information about the total number of forms, the total payments reported, and other necessary details.
STEP 6: Submit Copy A of 1099 to the IRS
Copy A of each Form 1099 and Form 1096 should be submitted to the IRS by February 28, 2024, if you file by mail. If you are filing 1099s electronically, then the deadline is March 31, 2024, and you don’t need to eFile Form 1096.
Some states have different 1099 tax rules, so to stay compliant with the local 1099 filing requirements, sometimes you also need to file 1099 forms with your state. Visit the State Government Websites and find local 1099 filing requirements.
PRO TIP: NEVER submit downloaded 1096 forms from the internet because they cannot be processed by the IRS scanner. The fine for submitting the unscannable form to the IRS is $50. Ensure you submit the RED Scannable Form always.
STEP 7: Retain Copy C of the 1099-MISC Form
Retain and store Copy C of 1099-MISC Forms for at least 3-4 years for future reference. It’s always better to create a separate record for storing all the forms in one safe place.
Watch the Video and Learn How to File 1099-MISC Form
SAMPLE 1099-MISC FORMS
Form 1099 MISC Due Dates – 2023/2024
The following are the deadlines for sending 1099-MISC forms to the recipients and for paper filing or e-filing them with the IRS. Always prepare and file 1099s before the deadline to save from heavy penalties for late submissions from the IRS.
The additional penalties for late filing range from $60 – $310 per missed 1099-MISC tax form, depending on how late the forms were submitted. For more information regarding deadlines and penalties of various 1099 forms like 1099-NEC, 1099-INT, and more, kindly refer to “1099 Deadlines, Penalties & State Filing Requirements for 2023/2024“.
How to Save Time & Money Filing 1099-MISC
Preparing and filing 1099-MISC Forms is always a tedious and time-consuming job. One small mistake can cost you dearly. The best way to save time and money is to consider CheckMark 1099 Software which makes 1099 filing just like a breeze.
What Not to Report on Form 1099-MISC?
Not all payments come under the 1099-MISC Form. Some of the payment, which you should not report on 1099-Misc is:
- Payments to corporations
- Payments to employees (Never classify employees as independent contractors)
- Payments for goods such as merchandise, telephone, freight, storage, and similar items
- Payments of rent to property managers or real estate agents
- Personal or household payments such as housekeeping, gardening, and babysitting
- Payments for non-business related services
- Payments to trusts
1099 Tax Tips for Employers
- Classify employees and independent contractors correctly.
- Make the contractors complete the Form W-9 when to pay them so that you can get hold of the contractor’s legal name, address, and Taxpayer Identification Number (TIN).
- Never fail to send the forms to independent contractors before the deadline.
- If you are e-filing 1099s directly to the IRS, then no need to prepare 1096 forms.
- Always keep a record of 1099 Forms for future use.
- Never use the free version of 1099-MISC Forms available on the internet. They are not accepted and processed by the IRS.
- Always use software for eFiling 1099-MISC forms to the IRS. It will save you time, money, and resources.
If you are having problems figuring out how to file 1099-MISC before the deadline, you can always reach us at any time. We’d be happy to ease out the pain of filing 1099-MISC Forms saving you time and reducing any potential for human error.