Wondering if you need to file a Form 1099-MISC this year?
We’ll teach you how to determine whether 1099s are relevant to your business, and show you the steps you need to take to file 1099s on time.
What is a 1099?
Commonly referred to as “a 1099,” the Form 1099-MISC is a tax form the IRS uses to track miscellaneous income. In a small business context, 1099s are commonly used to track and report payments made to independent contractors.
Specifically, Form 1099-MISC is used to track payments to any individual or unincorporated business, such as a partnership, limited liability company, limited partnership, or estate.
What is an independent contractor?
An independent contractor is anyone you hire, on a contract basis, to complete a particular project or assignment. By definition, an independent contractor is not an employee.
Some common examples of independent contractors include graphic designers, web developers, copywriters, and social media consultants.
If you hire a freelancer through a third-party service, you may not be required to submit a 1099 for them.
For instance, if you hire a freelancer through Upwork, you pay Upwork, which then pays the freelancer. Since Upwork is a service you pay for, not a contractor you hire, you don’t need to submit a 1099.
Naturally, these details may vary from one third-party hiring service to another. Check out a company’s “About” or “FAQ” section—or contact their support team—for tax filing details before you start using their service.
Do you need to file a 1099 this year?
Whether you need to file a Form 1099-MISC will depend on whether you hired any independent contractors this year, and on how much you paid them.
You do not need to file a 1099 to contractor if your business paid them less than $600 during the financial year.
But if you paid them more than $600 for services rendered, rent, in the form of prizes or awards, or for any other type of miscellaneous income payment, you need to file a 1099.
Keep in mind, there are a couple of exceptions to this rule.
Don’t file 1099s for corporations
The most important exception to keep in mind is that you don’t need to send 1099 forms to corporations. If the person or company you hired is classified as a c-corporation or s-corporation, you don’t need to worry about filing a 1099.
Although rare, independent contractors can sometimes operate as an incorporated business. If you worked with an incorporated independent contractor, you wouldn’t need to submit a 1099.
You can generally determine whether a contractor is incorporated, or classified as a corporation, based on the information on their Form W-9, which you should request from any contractor as soon as you hire them. Corporations’ names are typically appended with “, inc.”
Don’t file 1099s for employees
The IRS makes strict distinctions between employees and independent contractors, and they are often on the lookout for business owners who misclassify workers. You’ll need to file a Form W-2 to report wages, tips, and other compensation you paid to an employee during the tax year.
There are significant penalties for misclassifying employees as independent contractors, so learn how to tell the difference between an independent contractor and an employee before you submit a 1099.
How to file a 1099 form
One of the easier ways to file a 1099 is to use an online filing service like Gusto or Justworks. Filing services will guide you through every step of the process, and automate a lot of the legwork involved in filing a 1099.
If you’d prefer to avoid using a filing service, here are the steps you’ll need to take to submit a 1099 form before the filing deadlines.
1. Gather the required information
Before you can complete and submit a 1099, you’ll need to have the following information on hand for each independent contractor:
- The total amount you paid to the contractor during the tax year
- The contractor’s legal name
- The contractor’s address
- The contractor’s taxpayer identification number (likely their Social Security Number, unless they’re a Non-Resident or Resident Alien)
The standard method for acquiring this information is to have each contractor fill out a Form W-9 or “W-9,” a form that collects the contractor’s taxpayer identification number, tax classification (for example, “sole proprietor” or “LLC”), name, business name, and address.
As a best practice, you should have a W-9 on file for each of your independent contractors. In fact, having contractors fill out and return a W-9 to your business should be one of the first administrative tasks you complete after engaging their services.
Check your bookkeeping records to confirm the total amounts you paid to each contractor during the tax year.
Once you have all of the required information, use it to fill out Form 1099-MISC. There are two copies of this form: Copy A, which you submit to the IRS, and Copy B, which you send to the independent contractor in question.
2. Submit Copy A to the IRS
Copy A of Form 1099-MISC must be submitted to the IRS by January 31, 2018, regardless of whether you file electronically or by mail.
If you are submitting a 1099 that relates to the 2018 tax year, and you have filled out Box 7: Nonemployee Compensation, see the note in “When to File a 1099 Form (Deadlines)” below.
3. Submit copy B to the independent contractor
Once your Form 1099-MISC is complete, furnish Copy B to independent contractors no later than February 15, 2018.
4. Submit form 1096
If you file a physical copy of Form 1099-MISC, Copy A to the IRS, you also need to complete and file Form 1096.
The IRS uses Form 1096 to track every physical 1099 you are filing for the year.
The deadline for Form 1096 is January 31, 2018.
5. Check if you need to submit 1099 forms with your state
Depending on where your business is based, you may also have to file 1099 forms with the state. Check in with your CPA and ensure you’re compliant with your state’s 1099 filing requirements.
Physical vs. digital filing
You have the option of filing 1099s physically (through the mail) or electronically (online).
In both cases (physical or digital), you’ll need to send Copy A of Form 1099-MISC to the IRS and Copy B to your independent contractor.
However, the way to do that differs slightly, depending on whether you file physically or electronically.
Filing physical 1099s
When you file a physical Form 1099-MISC, you cannot download and submit a printed version of Copy A from the IRS website.
Instead, you need to obtain a physical Form 1099-MISC, fill out Copy A, and mail it to the IRS.
You can then fill out and mail Copy B of your physical Form 1099-MISC to your independent contractor.
Alternatively, you can download and print a version of Copy B from the IRS website, fill it out, and send it to your independent contractor. This process is explained in further detail on the first page of Form 1099-MISC.
Filing 1099s electronically
You can e-file Copy A of Form 1099-MISC through the IRS Filing a Return Electronically (FIRE) system. This form must be produced with the help of compatible accounting software.
Before using FIRE, you need a Transmitter Control Code (TCC). You can request a TCC by filling out Form 4419 and then mailing or faxing it to the IRS. This form must be submitted at least 30 days before the tax deadline for your Form 1099-MISC.
Once the IRS contacts you with your TCC, you may use it to create an account with FIRE.
You can email Copy B to your contractor, but first you need their consent to do so.
Consent should be obtained in a way that proves the contractor is able to receive the form electronically. For instance, if you are planning to email them a copy, you should contact them via email to obtain consent.
To comply with IRS rules, your request for consent must include the following:
- Affirmation of the fact that, if the recipient does not consent to receiving an electronic copy, they will receive a paper one.
- The scope and duration of their consent. For instance, are they agreeing to receive an electronic copy this year, or every year they work for you?
- How to request a paper copy from you, even if they have given consent to receive an electronic one.
- Instructions on how to withdraw consent. They may withdraw consent at any time in writing, electronically or on paper. You must also confirm their withdrawal in writing.
- Under what conditions the statement may no longer be provided—for example, if the contractor’s contract is cancelled, or if you end up paying them less than $600 for their services.
- The procedure they need to follow to update their information with you.
- A description of the hardware and software they need to view and print the form.
- A date at which the form will not be available. For example, if you are making it available to download via your company’s website, you must tell them at what point in time the form will be removed from your servers.
Once you have received consent from the contractor, you are free to send them their Copy B electronically.
Some services can make this process less labor intensive. For instance, Gusto automatically requests electronic filing consent from all of your contractors, and then sends out Copy B at the end of the year.
When to file a 1099 form (deadlines)
For the 2018 tax year, the IRS has updated the filing deadline for some 1099 forms.
Now, for 1099-MISC forms, if you report an amount in Box 7: Nonemployee Compensation, your filing deadline is January 31, 2018, regardless of whether you’re filing electronically or by mail.
If Box 7 is blank on your Form 1099-MISC, or if you’re filing Form 1099-MISC from a previous year, the following deadlines apply:
Send “Copy B” to Independent Contractors
Make sure your independent contractors receive Copy B of their Form 1099-MISC by February 15, 2018.
Send “Copy A” to the IRS Electronically or by Mail
Whether you’re filing Form 1099-MISC electronically or by mail, send Copy A of to the IRS by January 31, 2018.
What if you don’t receive a 1099 from a business?
If you performed work as an independent contractor, it is your client’s responsibility to send you a completed copy of the Form 1099-MISC by February 15, 2018. If you haven’t received Copy B of a 1099 from your client by deadline, and you believe you should have, make sure you request it. You will need it to file your income taxes in April. Regardless of whether you receive a Form 1099-MISC, you must report all income earned on your tax return.
What happens if you miss the 1099 filing deadline?
Missing the deadline is not the end of the world, but you will have to pay the following IRS penalties for each late 1099 form:
- $50 if you file within 30 days
- $100 if you file more than 30 days late, but before August 1
- $260 if you file on or after August 1
If you intentionally fail to file, you may be subject to a minimum penalty of $530 per statement, with no maximum.
The amount of the penalty is based on when you file the correct information return. If you aren’t able to file on time, you can request an extension using IRS Form 8809, but this does not extend the February 15, 2018 deadline for submitting a copy of the 1099 to independent contractors.
How to save time filing 1099s
By now you’ve probably realised that there’s a lot of legwork involved in filing 1099 forms.
As with all tax-related tasks, the do-it-yourself approach to filing 1099s is likely to be the least expensive option, but it’s also the most difficult and time-consuming.
Here are two options for filing your 1099s that will save you plenty of time:
1. Use a Filing Service
If you’d like to save time and skip the DIY process, it’s common for online payroll software providers to offer a filing service and submit 1099s on your behalf. There are plenty of options to consider, but two that we’re happy to recommend are Gusto and JustWorks.
Gusto’s system supports independent contractor and employee payments, and there’s no extra cost to generate a 1099 form at the end of the year. Gusto will automatically create and send a Form 1099-MISC electronically to each of your contractors. They’ll also e-file a copy of each 1099 with your tax documents.
Provided that you pay your contractors via the Justworks platform, Justworks will mail a Form 1099-MISC to each contractor at the end of the year. Justworks will also file an electronic copy of the 1099 to the IRS on your behalf. This service is available for free with all Justworks packages.
2. Work with a CPA or Tax Accountant
Certain CPAs or tax accountants will collect all of the necessary information on your behalf, and ensure that 1099 forms are filed on time. If you’re not working with one, learn more about how to find, hire and work with an accountant.
Keep in mind that most will charge an additional fee for this service.
Filing 1099s is just part of the tax season for small businesses. For a bird’s-eye-view of deadlines for the 2018 tax year, our 2018 Tax Year Calendar has you covered.