How to File a 1099-MISC

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Contributor, Benzinga
January 14, 2019

Tax Day is steadily approaching. Are you prepared to file your 1099-MISC forms? If you own a small business or you are an entertainer or another professional who regularly makes payments to independent contractors, you’ll want to understand the differences between the 1099-MISC form and a W-2 to avoid fees and penalties.

We’ve created a step-by-step guide to help you understand what exactly a 1099-MISC form is, when it’s used and how you can file one.

What is a 1099-MISC Form?

The 1099-MISC form is a version of the standard 1099 form used by business owners who have paid a freelancer or independent contractor more than $600 in a single business year. If you paid more than one freelancer, you are required to complete a 1099-MISC for each independent contractor you have worked with.

The 1099-MISC form covers rents, fees, charges, compensation, gifts, prizes and any other form of income you’ve paid out. You must provide the contractor with a copy of the 1099-MISC and you must also submit one to the IRS. You can complete the form online, through your tax software or via paper mail. You do not need to complete a 1099-MISC for your employees; instead, use the W-2 form, or else the employee may have to pay his or her own self-employment tax and Medicare contributions.

Independent Contractors vs. Employees: Who are You Paying?

The IRS employs very strict restrictions that differentiate independent contractors from employees — and you may face a steep penalty if you misclassify the person you’re paying. By definition, an independent contractor is not an employee, but many employers conflate the two because a contractor and an employee may be paid for the same work or the two may work in the same industry.

Contractors have the right to control where and when their work is completed, though the employer may dictate what work they receive or request modifications. Graphic designers, musicians and social media consultants are often independent contractors.

On the other hand, employers exert more control over how employees complete their work. Employees may perform work similar to that of a contractor, but the employer has the right to dictate how the work is done, where the work is completed, and how and when the employee receives payment.

Babysitters and childcare workers, IT professionals, waiters and copywriters are often misclassified as contractors, when in actuality, they meet the definition of an employee.

To determine if you are employing an independent contractor or an employee, ask yourself these questions:

  • Do I control where this person works? Do I require him or her to come to an office, business or my home to do his/her job?
  • Do I impose working hours on this person?
  • Do I control the tools this person uses to complete the work, the space he or she uses for work, or the method by which the work is completed?
  • Does this person have a payment rate that is set by me and that cannot be changed without a formal meeting?

If you answered “yes” to any of these questions and you have paid the person in question $600 or more this year, you have an employee and you are required to withhold taxes on his or her behalf throughout the year. To learn more about W-2s and the distinction between employees and contractors, view theIRS’s information about the W-2 form. To learn more about the distinction between independent contractors and employees, check out the video below:

 

 

 

What's on the Form?

To complete a 1099-MISC, you’ll need the following information:

  • Your name and address or the name and address of your business that has paid a contractor
  • You and your contractor’s taxpayer identification number (usually your Social Security number or Individual Taxpayer Identification Number)
  • The legal name of the contractor that you have paid
  • The contractor’s address
  • Information on the total amount of compensation or rent that you paid out to the contractor last year

If you are missing some of this information, ask the contractor to complete a Form W-9. As a general rule, you should ask every contractor you work with to fill out a W-9 before he or she begins work and keep the W-9 on file until you’ve sent his or her last 1099.

How to File a 1099-MISC Form

Step 1: Download the form

You’ll need to download the 1099-MISC form from the IRS first. If you file taxes online using tax software, your program may have the form already installed in its system. If you are doing your taxes by hand, you can find the download for the 1099 Copy A and Copy B here.

Step 2: Make sure you know where each form goes

There are two types of 1099 forms: Copy A and Copy B. Both Copy A and Copy B forms are nearly identical. If you are an employer or the person paying the contractor, you’ll want to make sure that you send Copy A to the IRS. Then, replicate the information from Copy A onto Copy B and send it to your contractor.  

Step 3: Submit Copy A to the IRS

Fill out the Copy A portion of the 1099-MISC form using the information you collected on both yourself and the contractor. Then, mail Copy A to the IRS or submit it electronically through theIRS’ Filing a Return Electronically (FIRE) system with the assistance of your tax software program. You must submit Copy A of the 1099-MISC to the IRS before January 31, 2019.

Step 4: Submit Copy B to the contractor

Copy the information you filled out in Copy A to Copy B. Then, mail Copy B to the independent contractor whom you’ve paid. You may physically or electronically mail Copy B, but you must get consent from the contractor to deliver this form by email. This is because you need a way to prove that the contractor actually received the form; otherwise you may have to pay a late penalty.

If you’d like to send Copy B via email, email the contractor and request consent to submit this form to them by email. By definition of the IRS, your consent should include the following information:

  • Affirmation of the fact that the contractor uses the current email address.
  • Affirmation of the fact that should the contractor refuse to consent to receive Copy B via email, you will mail a paper copy.
  • Affirmation of the fact that even if the contractor authorizes his or her Copy B to be submitted electronically, the contractor can still request and receive a physical copy.
  • Information on whether he or she consents to receive only this year’s 1099 via email or if you have continuous consent to receive tax documents via email until consent is revoked.
  • Affirmation of the fact that the contractor may revoke consent to receive the form via email at any time.
  • Information on how the contractor can revoke his or her consent. This may include a phone number, email address or physical address to which the contractor can direct correspondence revoking consent.
  • A description of the software that the contractor will need to view and download the form.
  • If you upload Copy B to your website, information on how long the document will remain available.

You must submit Copy B of the 1099-MISC to the contractor before January 31, 2019.

Final Thoughts

Under no circumstances should you put off sending your 1099 forms. IRS penalties for filing late range from $50 (if you file within 30 days of the due date) to a minimum of $530 per statement if you intentionally fail to file. These charges can be multiplied per late form, meaning that if you pay more than one contractor, you can face some very costly penalties. Double-check that you have all the information you need to file on each one of your contractors and send out missing W-9 forms as soon as possible to avoid paying excessive fees.

About Sarah Horvath

Sarah is an expert in the insurance, investing for retirement and cryptocurrency space.