Are you an employer utilizing services of independent contractors? If so, you'll need to pay special attention during tax time. While they're paid by your company, contractors are not employees and thus, their taxes are handled differently. As an employer, it's your responsibility to issue a form 1099-MISC to all eligible contractors.
Not sure how to issue a 1099? Well, keep reading and we'll show you how.
Who Needs A 1099 MISC?
All contractors who get paid $600 or more during the year, must be issued a 1099. This allows contractors to file their taxes for the year. You're not required to withhold any taxes, but your contractors will need this information. The IRS will need it as well. A 1099 is essentially the W-2 of the independent contractor world.
Deadlines For Issuing 1099s
When learning how to issue a 1099, start with familiarizing yourself with your deadline. Each year you must send your forms out by January 31st. Missing the deadline could result in a large fine. You can mail or hand-deliver these forms, but you need to make sure they're postmarked or delivered on time.
Each contractor needs to fill out a W-9 before you can issue a 1099, so you may as well get it done when the contractor is first hired. This will save you time and hassle at tax time. Just make sure to verify that the information is correct toward the end of the year.
How To Issue A 1099
Issuing a 1099 isn't difficult once you know the process. Only a few steps are required to get it done. First, make sure your information is correct. You'll need the names, addresses, and Social Security Numbers or Employer Identification Numbers for each contractor. You'll also need some blank 1099 forms.
The ones you find online are only samples and cannot be used. You must order your free 1099 forms from the IRS. These can take several weeks to get to you, so plan ahead. You may also be able to purchase the official forms from a local office supply store, but this method will cost you some cash. Fill out the forms or utilize an online service or desktop software program.
Don't Forget Your Form 1096
Aside from the 1099s you send to each contractor, you'll also need to file a Form 1096. This sums up the totals from all your returns. Your 1096 and a copy of each 1099 are what you'll send to the IRS. Don't forget to keep a copy for records!
Keep It Orderly
Once you learn how to issue a 1099 it isn't difficult to implement. You do need to be meticulous and get them done though. The penalties for not issuing 1099s can be hefty. Though the chances of being audited may be lower than in past years, you want to do the job right. Several methods are available online or via software to help you through the process in an orderly fashion.
Being a freelancer allows you certain liberties, but make sure you read this article on career change before making a rash decision. Make sure you get the required information from your contractors early in the game and send your 1099s out on time. As long as you follow the guidelines, the process is a piece of cake. While we are on the topic, check out our pay stub generator. It's a real time saver!