What is the IRS 1099 Form and Do I Need One?
Quick Tips on How to Handle a 1099-MISC Tax Form
Being self-employed has many advantages, including getting paid in full without employer deductions. As an independent contractor, freelancer or self-employed individual, getting a check for the gross amount owed to you can be pretty exciting. Nevertheless, Uncle Sam still wants his cut. This is where the 1099-MISC tax form comes in. Whether you just received your first 1099 or need to send someone a 1099, here is a simple breakdown of how it all works.
What Is a 1099-MISC Tax Form?
The 1099-MISC Form is similar to the W-2, in that it reports income to the worker and the IRS. The difference is that the 1099-MISC is used by businesses who pay contractors or freelancers $600 or more during a calendar year. While employers deduct taxes from your income and report it and your income on a W-2, clients who hire you as a contractor don't make any deductions, but still report what they paid to you on the 1099-MISC.
What to Do If You Receive a 1099-MISC Form
Legally, all individuals or companies who pay independent contractor or freelancer $600 or more during the year are required to send a 1099 Form by January 31st of the tax-filing year. If you did freelance or contract work for which you were paid $600 or more by a business in a year, you should expect to have at 1099-MISC by the end of January the following year. For example, if you earned $600 from Business A in 2017, you should receive a 1099-MISC from it by January 2018. Note, that if you earned less than $600, the company is not required to send you a 1099-MISC, but you are still required to report the income you earned.
There are two reasons you might not receive a 1099-MISC:
1. If your total payment was less than $600 total, the payee doesn’t have to send a 1099 Form.
2. If your payment was $600 or more, your payee may have just forgotten, in which case, you should contact the company. If you hadn't already filled out the W-9 Form (similar to the W-4 for employees), which provides your social security number or tax-ID number (EIN) you should send one when you make the request for the 1099.
If you work for several clients/businesses, earning over $600 from each, you'll receive a 1099-MISC from each. If you worked for several clients, but didn't earn $600 from each, you may not receive a 1099-MISC, but you're still responsible for including income you earned from them on your taxes on Schedule C.
What to Do If You Need to Provide a 1099-MISC Form
If you've outsourced work in your home business to other freelancers or contractors, you need to ask them to fill out a W-9. If you paid them more than $600, you need to prepare and send them a 1099-MISC at the end of January following the year they did the work. You also need to send a copy to the IRS. The IRS has specific instructions about sending the 1099-MISC in, including what paper to use.
For example, if you've hired a virtual assistant, a web designer, and social media manager, and paid them all over $600 over the course of a calendar year, you'd need to send them each a 1099-MISC by January 31 of the following year. If you paid the web designer less than $600 during the year, you wouldn't need to send a 1099 to that person.
Note that attorney fees of $600 or more may be handled differently than the traditional 1099. Check out the IRS website to get clarification.
While it seems like a lot of work and hassle, money you pay to contractors can be a tax deduction.
Incorrect 1099 Forms
If you've received 1099 with inaccurate information, contact the sender to request a new one with the right info. If you sent a 1099 with incorrect information, void and resubmit an updated one to the contractor and the IRS.
Get up to date information, instructions and form about the 1099 at the IRS website.
Updated December 2017 Leslie Truex