What is 1099-MISC Form?
Form 1099-MISC is an information return used to report non-employee compensation paid to an individual or unincorporated business. Payers must file Form 1099-MISC for each vendor who was paid $600 or more for services in one calendar year. Take note, 1099-MISC does not need to be filed for goods or merchandise purchased, only for services rendered. This form is then sent to the vendor, the IRS, and possibly (since state rules vary, we ask readers to confirm with their particular state).
The information included on this form includes the payer’s name, address, and taxpayer ID number. It also includes the amount received and the recipient’s information such as their name, address, and ID number (either a social security number or EIN depending on their entity setup).
What defines a contractor?
There is no perfect formula to derive the classification between an employee or contractor. Instead, employers and employees must look at the entire relationship and determine the proper classification. Because this can be a gray area for many, it is recommended employers get legal/professional help to reduce the risk of being penalized for improper classification.
Generally speaking, independent contractors have the right to control their work environments. The IRS outlines three main categories to consider: behavioral, financial, and the type of relationship. Other questions that can help guide the determination between an employee and a contractor include:
- Who controls what the worker does and how it’s done?
- Who set hours?
- How is the worker paid?
- Who provides tools?
- What type of contracts are in place?
- Is the worker receiving benefits?
- Is the work provided a key aspect of the business?
- How long is the relationship intended to continue
More information on distinction between employees and contractors can be found at U.S Department of Health and Human Services.
Your Responsibility as a Payer
By January 31st, payers must distribute copies of Form 1099-MISC to each contractor as well as the Department of the Treasury if there are amounts reported in box 7 of the form. Otherwise, file by February 28th if filing paper forms or by March 31st if filing electronically. Depending on the state, payers may also be required to supply the state with copies of Form 1099-MISC. Keep in mind, if the due date falls on Saturday, Sunday, or a legal holiday, the due date will be extended to the next business day.
There are penalties for late and unfurnished 1099’s. These penalties can be rather hefty and range from $50- $530 perform. To avoid these late fees, be prepared, know deadlines, ask your accountant, and read our guide about requesting extensions for 1099s.
Your Responsibility as a Recipient
For contractors expecting to receive Form 1099-MISC, it is important to confirm clients have correct information on file so forms are received by February 28th. However, it’s not always that simple. Sometimes payers forget and need to be reminded. Because this form is necessary to prepare individual income tax returns, the responsibility to receive Form 1099-MISC and verify the accuracy of the information is also the recipients. If the payer refuses to issue a 1099-MISC or cannot be contacted, it is critical the income is still reported in its entirety.
Typically, the payer will request Form W-9 from the vendor to ensure they have the correct information to complete Form 1099-MISC. If this was not previously requested, it would be wise to send the complete Form 1099-MISC. If this was not previously requested, it would be wise to send the completed form to the payer.
Though employers are required by law to issue copies of Form 1099-MISC to contractors who were paid more than $600 throughout the year, vendors who received less than $600 are still obligated to report the income.
For help with filing forms and returns, contact Private Tax Solutions. Our staff are trained to be efficient at collecting information and ensuring returns are filed accurately and timely.