Form 1099-Misc is known for Miscellaneous Income, that needs to be filed to independent contractors who were paid $600 or more in a calendar tax year. However, not all independent contractors require one. Here are the steps to determine when a Form 1099-Misc is required and how to file one.
1.Request a signed W-9 form when hiring independent contractors (required).
a. A W-9 is a form provided by the independent contractors and includes legal information: name, company name, entity type, address, taxpayer identification number or social security number to the hiring company. This form can be obtained from the IRS and kept on file by the hiring company.
2. Filter cumulative payments made to a vendor in a single calendar year over $600.00.
3. Verify the entity type off the W-9 of the independent contractors who were issued payments over $600.00.
a. Entity types eligible to receive a Form 1099-Misc: Individual/Sole Proprietor, Partnership, LLCs – treated as a single member or partnership, payments for attorney fees, rent, and interest expense are eligible despite the corporation exemption.
b. Entity types exempt from receiving a Form 1099-Misc: Corporations – C and S, LLCs – treated as a corporation.
4.Input the amount paid to the independent contractor on the appropriate line corresponding to the service provided. State if any federal or state taxes were withheld
5. Now you have a complete list of independent contractors that require a 1099-Misc filing. File the forms with the IRS and provide a copy to the independent contractors. This can be done either online or by mail. There are services that file 1099s electronically to the IRS and the independent contractors. This saves times, money spend on postage, purchasing forms, and provides confirmation that the forms were received by the IRS and recipient. Purchasing forms and using accounting software like Quickbooks, or manually preparing can also work. Those forms come with multiple copies for:
a. Copy A file with the IRS along with form 1096. Form 1096 is an Annual Summary and Transmittal of US Information Returns that’s filled out by the company to inform the IRS about the number of 1099s filed and the total amount.
b. Copy B for recipient
c. Copy C for state or payor
6.Due date – January 31 to provide to recipients and February 28 or March 31 if filing electronically to the IRS. An extension can be requested by filing form 8809, if unable to meet the deadline, however the extension is not granted automatically.