Filing form 1099-MISC for your independent contractors

Jan 08, 2019

If you hire workers that are not employees, then you likely need to file 1099s, specifically Form 1099-MISC.  This post will talk about when you need to file and how to get it done.

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What is a Form 1099-MISC?

Simply put, a form 1099-MISC reports non-employee compensation and other forms of income. 

If you're hiring independent contractors or freelancers, this is the form that reports their earnings, the money you pay them.

The IRS requires you as the business owner to file this form and submit a copy to the IRS as well as the worker.

The IRS has an interest in you doing this so that they're more likely to have the income reported and taxes paid on that income.

Who receives a Form 1099-MISC?

Any time you engage an independent contractor or freelancer, you should have them complete a form W9.  This gives you all the information you need to file a 1099 at the end of the year.  The best time to get this is before any payments are made, while you have contact with the worker, so you know you've got their info in case the relationship goes sour.

Not everyone that you pay will receive a 1099-MISC.  The threshold is $600 per year per worker.  That means if you hire three contractors and pay each of them $500 in the year, you don't have to file any 1099s.

The first question you should ask yourself is if you paid any one person over $600 in the year.

If the answer is yes, then you need to know if that person is a US Citizen.  If not, you are not required to file a Form 1099 for them, and instead of a form W9, you will have them fill out a Form W8BEN and keep that on file.

If you paid anyone $600 or over and they are a US citizen, you need to know what type of taxpayer they are.  Individuals, LLCs, and partnerships should be issued a Form 1099-MISC, but C Corporations and S Corporations should not.

When is Form 1099-MISC due?

Once you've determined that you have to file a Form 1099-MISC, it's important to know the deadline.

Form 1099-MISC is due to the recipient (your independent contractor or freelancer) by January 31st of the following year.  For example, the 2018 Form 1099-MISC is due January 31, 2019.

The deadline for the IRS used to be different, but for the tax year 2018 it is also due to the IRS on January 31, 2019 if non-employee compensation is being reported.  For your small business, this is likely what you're reporting to your independent contractors.

I always find it easiest to file to the recipient and the IRS at the same time, using the earlier deadline.  The information provided on each is the same.

This IRS resource explains the deadline.

What happens if a Form 1099-MISC is late?

If you file a Form 1099-MISC late, like every tax form, you can expect to be hit with a penalty.  The late penalty for 1099s is $50 if it's less than 30 days late, and $100 if more than 30 days late.  This penalty is per 1099 filed, meaning if you have 10 Form 1099-MISC to file and they are all late, you can get hit with as much as $1,000.00 in late penalties.

If 1099s are not filed before August 1, the penalty goes up again to $260 per return.

If the IRS decides you intentionally disregarded the rules and didn't file, the penalty can be as high as $530 per return.

Let's just say, be sure to file your 1099s and file them on time.

This article from the IRS explains the penalties a bit further.

How to file a Form 1099-MISC once you know you're required

If you have any confusion with these concepts, it's important to reach out to a professional tax preparer for help with filing 1099s.  They can make sure you're required to file, help you get the right information, and handling the filing for you.

This is a service I provide, so feel free to contact me for a quote if you need help.

If you're comfortable that you know exactly who you need to file a 1099-MISC for and you know the amount you paid them, there are a couple of electronic resources that I recommend for filing.

If you're looking for a place that you can make direct payments from you business checking to your contractor's bank account that files all forms for you and maintains an electronic copy of the W9, Gusto* is a great option.  * The link provided here is an affiliate link, but I use and love Gusto and only recommend services I feel this way about.

A cheaper option is Track1099, which you can use to electronically collect W9 information and file 1099s to your workers and the IRS.  Track1099 is cheaper, but is just for record keeping and tax filings, it is not a place where you can make the payments, you will just report payments that were already made.

What's next?

Be sure to stay in touch and check out my free resources.  The best place to start is by getting your Free Starting a Biz Checklist to make sure your business is set up right and you haven't missed a step that could cost you a lot of money or potentially cripple your business.