By: Janet Lapiak, MSA
Key Takeaways:
- As tax season approaches, businesses should start preparing to send Form 1099s to non-employee contractors and gig workers.
- To send 1099 forms accurately, companies should ensure correct information for all contract workers such as the full name, address and taxpayer identification or Social Security number of all contractors.
- There are nearly two dozen different kinds of 1099 forms; the most commonly used are 1099-NEC and 1099-MISC which must be filed by January 31 each year.
- Businesses should make sure to provide a 1099-NEC to each contractor who is paid $600 or more in a calendar year.
- Starting tax year 2023, if you have 10 or more information returns, you must file them electronically.
- For any questions about 1099 filing obligations, contact a KRD advisor.
The Time to Gather the Necessary Information is Now
As tax season approaches, an important end-of-year task for businesses is to start preparations to send Form 1099s to non-employee contractors and “gig” workers. The most essential task to do ahead of time is to ensure that you have current information for all contract workers, including their names, addresses, and taxpayer identification or Social Security numbers.
The 1099 form confirms to the contractor how much income they were paid in the previous year by your company, and reports that income to the IRS.
There are nearly two dozen different types of 1099 forms, each one designed to report a different type of income to the IRS. For instance, a 1099-DIV, due on or before January 31 each year, reports dividends paid by banks and other financial institutions. The most commonly used 1099s are the 1099-NEC (for non-employee compensation) and the 1099-MISC (for payments made to others by a trade or business), both of which must be filed by January 31 each year.
Here are some steps businesses should take to prepare and send 1099 forms:
- Understand the 1099 form and your obligation to provide it to independent contractors. Businesses must provide a 1099-NEC to each contractor who is paid $600 or more in a calendar year.
- As a best practice, collect a Form W9 for each contractor with full names, addresses and taxpayer identification or Social Security numbers when you hire the contractors.
- If you have 10 or more information returns, you must file electronically and create an e-file account because you will need to identify yourself. Click here to access the IRIS Taxpayer Portal.
- Send copies of the 1099s to independent contractors by January 31.
Remember, handwritten tax forms are often flagged for mistakes and inaccuracies, which can lead to penalties. Therefore, it’s recommended to use an electronic system for accuracy and efficiency.
Also, keep in mind that Form 1099-NEC must be filed on or before January 31, using either paper or electronic filing procedures. If you’re filing Forms 1099-NEC on paper, you must submit them with Form 1096, Annual Summary and Transmittal of U.S. Information Returns.
Who Files Form 1099-NEC?
Businesses that file the 1099-NEC are those that have made payments of $600 or more for:
- Services provided by someone who is not an employee, (including parts and materials)
- Payments to an attorney for legal services
Who Files Form 1099-MISC?
Businesses that file the 1099-MISC are those that have made payments of $600 or more for:
- Rents
- Prizes and awards
- Other income
- Fishing boat proceeds
- Medical and health care payments
- Crop insurance
- Cash payments for fish or aquatic life
- Gross proceeds paid to an attorney, including amounts paid to law corporations
- Nonqualified deferred compensation
- Payments of $10 or more for royalties
- Payments of $10 or more for broker payments in lieu of dividends or tax-exempt interest
- Payments of $5,000 or more for direct sales of consumer products to a buyer for resale other than a permanent retail establishment (May now be reported on 1099-MISC or 1099-NEC)
- Whenever there is any back up withholding
Always consult with a tax professional to ensure you’re complying with all relevant laws and regulations. If you have any questions about your business’s 1099 filing obligations, contact your KRD advisor.
