If you hire vendors, independent contractors, freelancers, or gig workers and paid them more than $600 in business-related payments, then you’ll need to prepare and issue an IRS Form 1099-MISC so they can file an income tax return. The time to get ready is October and November. Don’t wait until the January deadline approaches.
Is there a deadline for 1099s?
Yes, Businesses must send 1099s to all contractors by January 31st (the same deadline for sending out W-2s). Companies must file those 1099s by the end of February if filing on paper or March 31st if filing electronically.
What’s the penalty for missing the deadline?
The penalty for missing the deadline ranges from $30-$100 per form with a maximum fine of $500,000 per year. If a company completely disregards the requirement to provide a correct statement, it could be hit with a penalty of $250 per form with no maximum.
Follow these six easy steps and you’ll be in great shape by the time tax season arrives. The information is from an article written by Intuit QuickBooks.
1. Check your work
Before you start the 1099 process, make sure you have all the correct information on your contractors and vendors. You should already have a filled-out Form W-9 for each vendor, which includes their name, address, and Social Security number (SSN) or Employer Identification Number (EIN). The W-9 will also include their tax filing status, so you can check to see if you need to issue a 1099 for that vendor.
It’s a good idea to check with each contractor to see if any information has changed prior to starting the 1099 process. If the contractor has not provided a W-9 or has omitted specific information, the IRS says that you can withhold 28% of the contractor’s pay and send this directly to the IRS. This is known as “backup withholding.”
2. Get your 1099s
Once you have accurate information to work with, it’s time to get your 1099s. You cannot use a downloaded Form 1099-MISC or a sample from the IRS. If you are filing on paper, you’re required to use specific forms that are readable by the IRS scanner used to process all 1099s. You can order these forms from the IRS by calling 1-800-TAX-FORM (1-800-829-3676) or visiting its website.
There are also alternative sources for getting these forms. You can order them from some office-supply stores, or you can use financial software like QuickBooks to create, distribute, and file your 1099s online. You can also buy pre-printed 1099 Forms from Peak Advisers that let you print all of the info from QuickBooks directly into the corresponding sections of the 1099 Form.
3. Fill out the forms
With your contractors’ information and the forms handy, it’s time to start filling them out. Start with your Federal Tax ID number, which could be your SSN or EIN. Then add in the contractor’s information, which includes their SSN or EIN.
Each 1099 should also include the amount of money paid to the contractor, which is entered in Box 7 under the title “Non-employee compensation.” If you withheld any pay from the contractor (e.g. if you had to provide the aforementioned “backup withholding”), you will also need to fill in Box 4 or 11 in relation to any federal or state income tax you withheld.
Finally, confirm that their taxpayer ID is accurate. (This is typically their social security number.). Repeat this for each contractor you’ve worked with. Integrating the 1099 process with your existing financial software means this information is automatically generated and entered for you, saving you time and reducing any potential for human error.
4. Send out the forms
The next part of the process is to send the forms. You must mail or hand each 1099 Copy B to the contractor no later than February 1st. Failure to meet this deadline can lead to the IRS penalty fees mentioned above. It’s essential that these forms are mailed to contractors on time because they need them to make tax payments, report their total amount earned, and ultimately file Form 1099-MISC.
5. Mail form 1096 to the IRS
IRS Form 1096 summarizes the totals from your returns — in this case, from your 1099s. If you file through snail mail, you must mail Form 1096 and Copy A of each Form 1099 to the IRS no later than February 29th. If you’re filing electronically, the forms must be sent out by a hard due date of March 31st.
6. Keep a record of your filing
Be sure to keep Copy C for your own records in case there are questions regarding the information provided to the IRS.
This article is intended to provide you with the steps for completing and filing these forms; it does not constitute any type of tax advice. For recommendations related to your overall financial and tax status, contact Peak Advisers. You can contact us here, use this link to give us a quick email, or call us now at
303-801-4772.