How to File 1099 MISC for Independent Contractor

Wondering how to file 1099 MISC? Filing 1099s is pretty straightforward if you know how to do it correctly i.e. according to the guidelines prescribed by the IRS. However, for your convenience, we have created this resourceful guide, which will show you exactly how to file 1099 MISC for independent contractors.

What is Form 1099 MISC?

Form 1099 MISC is a tax form used by the IRS to track all the miscellaneous income paid to the non-employees (independent contractor) in the course of the trade or business. In a simple context, you must file 1099 MISC if you have paid any independent contractor a sum of $600 or more in a year for their services for your business or trade. The independent contractors need to report these payments on their tax returns as well.

For example, if you hire a website developer on a contract basis to develop a website for your business and paid $2000 for their services, then you must report the $2000 payment to the website developer on Form 1099-MISC.

What are the Different 1099 Tax Forms?

Since there are many types of 1099s, which are used for different purposes, the 1099-MISC form is a catchall for all miscellaneous income. It is generally the most applicable and most used by many business owners to report contract services.

However, the other 1099 forms are newly introduced 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.

Who is an Independent Contractor?

An independent contractor is an unincorporated entity such as a sole proprietor or LLC or member of a partnership or limited liability or estate that provides services to another business under the terms specified in a contract or an agreement. Some examples of independent contractors are:

Do You Really Need to File 1099 MISC This Year?

If you, as an employer or business owner, paid $600 or more to independent contractors for their services during the tax year, then you must file 1099. Other than services, filing 1099 is applicable for:

• • Prizes
  • Awards
  • Rent
  • Royalties
  • Physicians
  • Suppliers of health and medical services

For more detailed information, log on to IRS detailed information.

Parts of 1099 MISC Forms

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)

How to Fill Out 1099 Form?

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 Form W-9 in order 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 to 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. 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 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. Ensure you enter the same amount of money you paid to the contractor in Box 7 under the title “Non-employee compensation.”

Finally, fill 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. In order to file the 1099s pretty accurately, it’s always better to use 1099 software, which can automatically generate and file the information to IRS without any errors and blunders.

PRO TIP: In case if you have withheld any amount from the contractor (backup withholding), then you need to fill that specific amount in Box 4 or 11 in relation to any federal or state income tax you withheld.

STEP 4: Send Copy B of 1099 to 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, 2023.

PRO TIP: Never delay sending the forms to the independent contractors because IRS may impose heavy penalties for late distribution if there is no genuine reason.

STEP 5: Submit Copy A of 1099 to the IRS

Copy A of each Form 1099 and Form 1096 should be submitted to IRS by February 28, 2023, if you file by mail. If you are filing 1099s electronically, then the deadline is March 31, 2023, and you don’t need to eFile Form 1096. Form 1096 is an Annual Summary and Transmittal of U.S. Information Returns, which summarizes the totals from your returns from 1099s. This form is only needed if you are filing on paper.

Some states have different 1099 tax rules, so in order 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 form from the internet because they cannot be processed by the IRS scanner. The fine for submitting the unscannable form to IRS is $50. Ensure you submit the RED Scannable Form always.

STEP 6: Retain Copy C of 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 To Get More Information About Filing 1099 Misc…

SAMPLE 1099 MISC FORMS

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The following are the deadlines for sending 1099 forms to the contractors and for paper filing or e-filing them with the IRS. Always prepare and file 1099s before the deadline in order to get saved from heavy penalties for late submissions from IRS.

Penalties for Late Filing

The penalties for late filing range from $50 – $290 per missed 1099 tax form, depending on how late the forms were submitted.

The maximum penalty is a total of $3,532,500 for large businesses and $1,177,500 for small businesses.

PRO TIP: In case if you were unable to file 1099 on time, you always have the option to request a 30-day extension by filing IRS Form 8809 (Extension of Time to File Information Returns). You MUST have a valid reason for getting an extension from the IRS.  However, this extension does not extend the February 28 deadline for submitting the Copy B of 1099 to the independent contractors.

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 an automatic option i.e. 1099 Software. There are many options available but CheckMark 1099 Software 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

1. Classify employees and independent contractors correctly.
2. 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).
3. Never fail to send the forms to independent contractors before the deadline.
4. If you are e-Filing 1099s directly to IRS, then no need to prepare 1096 forms.
5. Always keep the record of 1099 Forms for future use.
6. Never use the free version of 1099 MISC Forms available on the internet. They are not accepted and processed by the IRS.
7. Always use software for eFiling 1099 MISC forms to 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 in filing 1099 MISC Forms saving you time and reducing any potential for human error.