Who Needs a 1099 Form
Who needs a 1099 form? As a general rule of thumb, plan to create a 1099 for any contracted employee or service provider who you have paid $600 or more in a year.
Form 1099 is used to report certain types of non-employment income to the IRS, such as dividends from a stock or pay you received as an independent contractor.
Businesses must issue 1099s to any payee (other than a corporation) who receives at least $600 during the year. However, there are exceptions to the $600 threshold rule.
For example, a 1099 is typically issued by a financial services provider if a customer earned $10 or more in interest income.
You should report money paid in the following instances no matter how low the amount:
- Royalties - you must report royalties in box 2 if you paid the recipient at least $10 during the year. Royalties are payments to owners of property for use of that property.
- Backup Withholding - these are orders you receive from the IRS requiring your company to withhold income taxes from payments you make to a payee. You must report all backup withholding amounts for anyone for whom you have withheld income taxes under a backup withholding order, even if the total is $600 or less.
There are many types of 1099s, depending on the type of income that was earned during the tax year. As of 2021, there are 20 varieties of 1099 forms.
The IRS gets a copy of the 1099 you created. The annual deadline is January 31 for mailing 1099s to most taxpayers, but some are due February 15. You may also have to file any 1099-MISC with the state (this is where having a bookkeeper comes in handy).
1099 forms are a vital part of IRS matching. Take these form seriously...the IRS sure does.
exceptions
Some general exceptions to who must be issued a 1099-MISC include:
- Corporations (including LLCs or partnerships that elect to be treated as S or C corporations)
- Payments for merchandise, freight, storage, telephone, or similar items
- Rent payments to/through real estate agents/property managers
- Wage/salary payments to employees
- Payments to tax-exempt organizations
- Payments made to any person or business via credit card or through PayPal
What is a contract worker?
A contract worker, often known as a freelancer, is anyone who has been hired to produce or deliver a specific product or service. This arrangement is sometimes known as “work for hire”. Contract workers have become very common in our modern economy. Common examples of contract workers include graphic designers, web developers, copywriters, and social media consultants.
Who needs a 1099 form FAQ
Fill out a new 1099-MISC form with the correct information and mark the “corrected” box on the form. File the corrected form electronically or by mail.
You can order hard copies of 1099-MISC forms from the IRS or file them electronically via the IRS FIRE system. You may also print them out from the IRS website.
Include the following information on a 1099-MISC form:
- Your name, address, and TIN
- Name, address, and TIN for the payee
- The amount you paid in the box that corresponds to what the payment was for
What are the penalties if the deadline is missed?
Penalties for not filing a correct 1099 can add up quickly and vary from $50 to $110 per form depending on how long past the deadline. If the IRS can prove that a business intentionally disregarded the requirement to provide a correct payee statement, they are subject to a minimum penalty of $550 per statement, with no maximum!