Form 1099-MISC primarily gives information about independent contractors to the IRS.
As per the 1099 MISC instructions, guidelines and requirements from the IRS, businesses are required to submit information to the IRS. Form 1099 is used to report remuneration earned by an independent contractor. There are 18 types of 1099 forms, and IRS defines small businesses as the ones having gross revenues of $5 million or less.
As a business owner, it’s difficult to be up to date with all the modifications to the tax filing forms, which are released by the Internal Revenue Service every year.
Fortunately, when you look at the specifics, it’s not that complicated. Our post highlights the current 1099 MISC instructions that ensures you and your independent contractors fulfil your tax filing responsibilities. And everyone avoids the IRS fines for failure to file before the deadline.
Basically, all you need to do is make sure the information is on the correct form; there’s no need to supply any other information. The 1099-NEC replaces the 1099-MISC as the official form for “Non-Employee Compensation,” which is the biggest change for small business owners.
Choosing the appropriate form depends on who and how you are paying.
Let’s look at how incorporating a 1099 filing might reduce your stress level as a business owner during the tax season.
What needs to be Reported
Form 1099-NEC is used to file payments of services for “Non-Employee Compensation,” when the payments are equal to or in excess of $600 in a given year. Form 1099-MISC is used to report certain types of miscellaneous compensation equal to or in excess of $600 in a given year such as rent, prizes and awards, healthcare payments, and payments to an attorney, to the IRS, and to the recipients of those payments. It is also used to report royalty payments of at least $10 to each person to whom you made them during the year. It can also be used to report broker payments made in lieu of dividends or tax-exempt interest.
The rules of eligibility to report are straightforward – small business owners who have paid to seek services from an unincorporated vendor which must be at least $600 in the accounting year are defined by the IRS to report Form 1099-NEC. It is mandatory that the reporting be done for services and only from unincorporated vendors – for instance seeking services for software installation from XYZ Computers needs to be reported in Form 1099-NEC.
Who needs to Report
Internal Revenue Services has laid clear instructions for the 1099-MISC reporting – the four conditions that are to be met are – the payments should be made to an individual (not an employee), payments that are done to seek services that are essential for running the business, the payments that are at least $600 for the accounting year.
As an example – payments of at least $600 for the year made in favour of architects, lawyers, contractors, etc are liable to be reported in Form 1099-NEC. Also, payments made to the employee’s nominee after the employee’s death are to be reported using a 1099-MISC.
Small business owners in order to file the 1099-MISC would need each individual’s taxpayer identification number. The Form with the IRS-approved format can be printed using CheckMark 1099 Software. You may also try the e-File version of 1099 software to fill in the values and file it directly to the IRS electronically.
How to File
The small business owner has to file one copy of the 1099-MISC with the IRS and the second copy has to be handed over to the person/individual whose services were used. As said earlier the business owner can e-File the same to the IRS. Forms downloaded from the IRS websites cannot be scanned and filing non-scannable forms can result in penalties.
The print version of CheckMark 1099 software is capable to print Form 1099 as per the IRS directives after the values are placed. With the e-file version, you can electronically file the forms directly to the IRS.
As per the small business jobs act, IRS has placed stringent rules to maintain accurate and timely submission of Form 1099-MISC for small businesses. Some of the broader penalties are mentioned below. Filing Form 1099-MISC late but within 30 days of the deadline incurs a penalty of $50 per 1099 submission to as high as $1,177,500 for small businesses.
When you file with inaccurate data, the penalties will depend upon when you have finally reported correct information, and a minimum of $580* per 1099-MISC submission and is categorized under – intentional disregard to provide accurate information.