Guide to 1099-misc
A 1099-misc is an income reporting form for businesses. The most common use you will see is business owners using it to report to the IRS if they paid someone to do contract services for their business. This is called Box 7 “Non-employee Compensation.” They do not need to be issued for personal expenses.
Step one to filing 1099’s is to determine if you need to issue a 1099-misc.
What info you need to issue a 1099-misc
Once you’ve determine that you do need to issue a 1099-misc, you should request a W9 form from each contractor, if you do not already have one on file. You can download a blank copy here.
If your contractor is outside the US then ask them to fill out form W8-ben to prove they are exempt from a 1099.
W9’s should never be sent via email, it is not a secure way to share information and easily intercepted. My favorite way to request or send a W9 securely for free is to use HelloSign. TIP: If you need to send more than the 3 limit for free, you can do a 30 day trial of the Pro Plan.
Form 1099-misc only have to be issued to Sole Proprietors, or Partnerships for services. They do not need to be issued to a corporation, or if you bought a product (physical items or digital course)
In addition to each of your contractor’s information you will need to provide your company information, including an SSN or EIN. If you do not already have a Tax ID (EIN) number for your business, you can get one for free at IRS.gov
What if someone refuses to give me a W9 or their information?
If you have gone through the checklist and you do indeed need to issue a 1099-misc, but can’t get the information here are your next steps.
- Remind them that it is the law that they provide the information and make at least three documented attempts to request the information.
- If they still refuse, then inform them you are required to begin backup withholding immediately if they wish to continue working with you. You should immediately begin backup withholding, at the rate of 28 percent, on any reportable payments made to the payee (and remit this amount to the IRS).
- Finally, if a contractor refuses or fails to provide his taxpayer identification number, you should still fill out and timely file the 1099 with a notation that the payee failed or refused to provide his taxpayer identification number. Failure to file Form 1099 based on a person’s refusal or failure to provide his taxpayer identification number does not excuse you from timely filing all required forms.
How to file a 1099-misc online
The days of paper filing any tax form are fading fast. There is no reason to buy a pack from the office supply store or ordering forms from the IRS. There are many different e-file providers that you can use to file online in a matter of minutes.
If you are going to file the 1099’s yourself without any help from a bookkeeper or tax professional, then I’ve found Track1099 to be the easiest to use.
You can enter your information as the Payer and all your different contractors as Payee’s.
Remember that you want to report the amount you paid them in Box 7 “Non-employee Compensation” The cost to file online through Track1099 is around $4 per form. You can deliver the 1099’s electronically to your contractors as long as they have an email address entered (which is great if you’re doing things last minute).
Once you e-filed your 1099’s and made sure that copies have been sent to your contractors, you are all set!
You can also read the IRS info page on 1099-misc here
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