If your company hired independent contractors and paid them more than $600 in business-related payments, then you’ll need to prepare and issue an IRS Form 1099-MISC so they can file an income tax return. Although the process may seem complicated, using the proper tools makes it pretty straightforward. Follow these six steps to prepare 1099s for independent contractors.
Begin preparing your 1099s by ensuring you have the correct information for each contractor. You should have a Form W-9 from each with their name, address, Social Security number or Employer Identification Number and tax filing status. Check with each contractor to determine whether their information is accurate or needs to be updated. Next, if filing on paper, order Form 1099-MISC online or over the phone from the IRS or an office supply store. (Or, if filing online, use financial software to create, distribute and file your 1099s.) Then, use each contractor’s information to fill out your 1099s. Begin with your Federal Tax ID number, then add the contractor’s information. In Box 7, under Non-employee compensation, enter the amount of money paid to the contractor. If you withheld any pay, such as backup withholding for not supplying W-9 information, fill in Box 4 or 11 for any federal or state income tax you withheld. Confirm that the taxpayer ID is correct. Repeat the process for each contractor. After that, mail or hand out Copy B of 1099 to each contractor no later than January 31st. Contractors need this document to report their total amount earned, make tax payments and file their tax returns. Next, send the IRS Form 1096 (which summarizes the totals from your 1099s) and Copy A of each Form 1099. For 1099s that contain Non-Employee Compensation in box 7, the filing deadline is January 31st. The due date for 1099s with no data in box 7 is February 28th if filing by paper. If filing electronically, March 31st. Finally, keep Copy C of each 1099 for your records. Keep these copies so you can refer back to the forms if there are questions about the information you provided the IRS.
Deadlines for 1099s
As with W-2s, you must send 1099s to contractors by January 31st. You also need to file those 1099s by the end of January if they contain wages in box 7. If your 1099s do not contain wages in box 7, they are due by February 28th on paper, or by March 31st if filing electronically. If you miss the deadline, you may pay a penalty of $30-$100 per form with a maximum fine of $500,000 per year. If you purposely avoid providing correct 1099s, you may face a penalty of $250 per form with no maximum.
Help Preparing 1099s
Let Red River Payroll prepare your 1099s. We provide a comprehensive tax processing service that guarantees the accuracy and timeliness of your payroll tax withholding, reporting and filing. Contact us today to get started.