The 1099 Guide- What, Who, When, How much, and How to file
One of the scarier aspects of becoming a business owner is filing 1099s. Do you know your compliance obligations? Filing (or receiving!) 1099s helps to show proof of your payments and income for the IRS's internal matching system. And if you work with contractors, or are a contractor yourself, you need to understand this form!
The different types of 1099s
1099-NEC: Payments to each person, in the course of your business, whom you have paid at least $600 who either performed services for you (not as an employee) or payments to an attorney
1099-MISC: Payments of at least $10 in royalties, broker payments in lieu of dividends or tax-exempt interest, or at least $600 for rents, prizes & awards, other income, medical health care payments and more. (See more at IRS Instructions).
1099-B: Issued by a broker or barter exchanged for stocks, commodities, regulated future contracts, foreign currency contracts, forward contracts, debt instruments, options and more for cash. (See more at IRS Instructions).
Other common 1099s include 1099-DIV, INT, G, S, R, and SA.
Who gets a 1099-NEC?
As a contractor, you'll most likely be sending and receiving 1099-NECs. NEC stands for non-employee compensation. So, you'll need to have a relationship that the IRS would deem non-employee. There are stiff penalties for misclassifying an employee as a contractor, please consult with your tax accountant for help determining your contractor/employee statuses. If you pay a non-employee at least $600 in the taxable year for services performed for your business and they aren't:
A corporation, government agency, or tax exempt organization
Paid by credit card
Your employee
You’ll likely need to issue them a 1099-NEC
When do I need to file a 1099-NEC?
1099-NECs are due to be filed and furnished to the receipt by January 31st. This means your forms must be postmarked and mailed by the deadline.
How do I file a 1099-NEC?
First, you’ll need the Form W-9 filled out by your contractors. It is best practice to have them fill out a W-9 Form prior to making any payments to them. This form provides the contractor’s name, address, SSN/EIN which will be all the necessary information to file a 1099.
Once you have your contactor’s W-9, you’ll need to determine the amount you paid them in the tax year. Then you have multiple options for filing your 1099’s.
Your bookkeeping software or payroll processor may offer to file these forms on your behalf for a fee
You can file the forms by paper or e-file them on your own
Have your tax accountant prepare and file your 1099s on your behalf
Hope this guide helps you navigate through the 1099 season!
