"I'm watching you, Wazowski. Always watching. Always!" - Roz (Monster’s Inc)
Same for the IRS. Or at least that’s their plan. One of the ways they keep an eye on you is by requiring your business, even if you are self employed, to file a 1099-Misc for the payments you make to independent contractors and others. Because the IRS matches this form to the tax returns of the people who receive them, the IRS can be certain those folks are reporting this income. And to "encourage" businesses to file those 1099-Misc forms the IRS can fine you up to $270 for each one you should have filed, but didn't.
Who are you required to send a 1099-Misc to?
Anyone your business paid:
- At least $600 in services, rent, prizes or awards or other income payments and distributions.
- At least $10 in royalties.
- Gross proceeds to an attorney.
Additionally, you should use the 1099-Misc form to report any income paid in either of these scenarios:
- The result of direct sales of at least $5,000 of consumer products for resale anywhere other than a permanent retail establishment.
- Each person for whom you have withheld federal income tax under the backup withholding rules.
However, you DON'T have to issue a 1099-Misc if you made payments:
- To an employee which is reported on their W-2.
- To a corporation, unless it a "reportable payment" to an attorney, who must receive a Form 1099-Misc, regardless of corporation status.
- To a tax-exempt organizations in the United States, the District of Columbia, a U.S. territory or a foreign government.
For more detail on who should and should not receive a 1099-Misc, the IRS provides instructions for Form 1099-Misc that are, as always, straightforward and easy to understand....if you have a Masters of Accounting degree.
Here are additional things to know about Form 1099-Misc:
- You must provide Copy B of Form 1099-Misc to the recipient by January 31 of each year. The due date may be extended to February 15 if you are reporting payments in box 8 or 14.
- File Copy A of this form with the IRS by January 31 if you are reporting payments in box 7. Otherwise, file by February 28 if you file on paper, or by April 1 if you file electronically.
Business owners should work closely with payroll departments, accounting teams or CPA firms to identify who needs to receive a form. States may have similar filing requirements or forms. Be sure to check your state's tax law to ensure compliance.
To order official tax information returns, please visit the IRS website. Click on Employer and Information Returns, and they will mail you the forms and their instructions. Returns may also be filed electronically using the IRS Filing Information Returns Electronically (FIRE) system.
If you’d like to learn more about how to issue the Form 1099-Misc or how to process your tax returns, click below to request a consultation.