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When the IRS began collecting 1099s after the passage of Dodd-Frank, many businesses were left scrambling to figure out how to submit their forms and comply with federal tax reporting requirements. The 2020 deadline for small businesses is fast approaching, so here’s what you need to know about filing your form correctly on time.
The “irs form 1099-misc 2021” is a form that small business owners will need to report their income. The new tax year starts on January 1, 2020.
Businesses who pay $600 or more in compensation to non-employees throughout the year must transmit copies of Form 1099-NEC to the IRS and contractors starting in 2020. This was reported on 1099-MISC in previous years (2019 and earlier). Payments made throughout the calendar year 2020 must be reported on Form 1099-NEC by February 1, 2021. You may print blank 1099-NEC form copies from the internet or finished 1099-NEC form copies from your payroll program (many offer it for free).
What Is a 1099 Form and How Do I Use It?
An information return is a Form 1099. Its primary purpose is to provide non-employees with a record of the total annual payments they received and must report during tax season (you will not withhold or pay any employer taxes on the money you pay contractors); 1099 forms also notify the IRS of individuals who received untaxed payments throughout the year in case they do not self-report and pay their tax bill.
To restate, the most prevalent 1099 form for small and mid-size firms as of January 1, 2020 is Form 1099-NEC, which is used to record non-employee remuneration. These contractor payments were formerly reported on Form 1099-MISC. Use the 2019 1099-MISC if you need to submit a 1099 for non-employee income paid out in 2019.
Other kinds of 1099 forms (other from the 1099-NEC and MISC) will be discussed later in this article.
Here is a link to the IRS Form 1099-NEC.
Is Form 1099-NEC Required for Everyone?
If a business paid at least $600 to contractors in the preceding calendar year, they must submit Form 1099-NEC. Individuals, single proprietors, and partnerships are often given Form 1099-NEC. Businesses may be required to submit a Form 1099-NEC to corporations under certain instances.
When Should You Submit Form 1099-NEC?
For most firms, the deadline for reporting Form 1099-NEC is January 31; however, if that date occurs on a weekend, it is due the following Monday. Businesses must provide one copy of the form to their contractors and suppliers by the 31st of January to record payments received during the previous calendar year. By the same deadline, businesses must submit a second copy of Form 1099-NEC with the IRS (and, in certain cases, their state tax office).
The deadline to file Form 1099-NEC in 2020 is February 1, 2021. By January 31, 2020, you should have submitted Form 1099-MISC for any payments you made to employees in 2019.
How to File Form 1099-NEC with the Internal Revenue Service
Businesses may utilize paper forms or software to produce Form 1099-NEC, which they submit with the IRS in one copy. Alternatively, a company might retain an accountant to prepare and submit the paperwork, particularly if they already use one for payroll.
A company may create Form 1099-NEC in a variety of methods, including:
- Fill out the following paper forms: Order free blank forms from the IRS; be sure to acquire Form 1096 as well as Form 1099-NEC. Fill out the forms, then submit them to the IRS and your contractors. (Form 1096 is a summary of all the 1099 forms you issue and should be given to the IRS together with the 1099 copies.)
- Forms in PDF format may be downloaded here: Prepare the copy you send to contractors and vendors using the downloadable Form 1099-NEC; download the 2020 version of Form 1020-NEC from the IRS website, put in information on-screen, print, and ship to your suppliers.
- Use payroll software: Many payroll software packages have a function that allows contractors to print completed forms themselves, or you may email and print them.
- Use accounting software: Some accounting software systems, such as QuickBooks, can produce, print, and e-file Form 1099-NEC. For further information, see How to Fill Out 1099 Forms in QuickBooks.
- Use Form 1099 software: You may prepare and e-file Form 1099 using a variety of desktop and web-based software tools.
- Hire an accountant: In addition to your income tax return, accountants may prepare and e-file your 1099 documents.
In four easy steps, you may complete Form 1099-NEC.
1. Have all independent contractors fill out a W-9 tax form.
It is critical to have a completed Form W-9 signed by an independent contractor before paying them for any work. The contractor’s name, address, and taxpayer identification number are all included on Form W-9, which you’ll need to prepare Form 1099-NEC. Examine your records to see whether you need to obtain Form W-9. They should be kept alongside your payroll paperwork.
The following are the websites to get Form W-9:
- This is the blank W-9 form. Have your contractors fill out, sign, and send you a copy of Form W-9.
- Instructions for the Form W-9 requester: These guidelines are for companies and include topics like when to ask a contractor for a Form W-9.
If you don’t want to deal with paper tax forms, payroll software like Gusto can take care of it for you. Contractors fill out electronic W-9 forms with their personal information, which is then automatically transferred to year-end 1099 forms, so you don’t have to. The program also allows you to pay independent contractors by direct deposit or cheque for a monthly fee of $6 per employee. You may start a free trial right now.
Gusto is a great place to visit.
2. Keep track of payments made to freelancers.
Businesses may manually monitor payments to contractors and suppliers or use software to do so. Compile a report at the end of the year detailing the total amount paid to each contractor. Analyze this data to see which contractors need a Form 1099-NEC to be sent.
Use Microsoft Excel or Google Sheets to manually log payments. You may use algorithms to tally the payments automatically, ensuring that you always have a running year-to-date total.
3. Fill out Form 1099-NEC and send it to the IRS.
You may produce the Form 1099-NEC after you have a report indicating total amounts paid to each contractor and the Form W-9. As needed, fill out a Form 1099-NEC for each contractor or vendor. File one copy of each Form 1099-NEC with the IRS, either via mail or online, after double-checking for correctness.
The following is a picture of Form 1099-NEC, along with a short summary of the types of payments that are reported in each box:
Compensation for non-employees (Box 1)
Payments of $600 or more to a non-employee must be reported. Payments to accountants and independent contractors are often reported in this section. Non-employee pay given to individuals and partnerships may usually be reported.
Boxes 2 and 3 Compensation for non-employees
This field does not need any information, so leave it blank.
Box 4: Withheld federal income tax
In this box, type backup withholding. Even if the payment amount is less than the threshold, you must submit a Form 1099-MISC if you withheld any federal tax from a contractor.
Backup withholding may apply to a contractor if the contractor does not supply you with their federal taxpayer identification number or Social Security number, for example. This is why it’s critical to get a signed Form W-9 from your contractors before paying them.
Information about the state (box 5-7)
For firms that are obliged to submit copies of Form 1099-MISC with state tax agencies, these boxes must be filled out.
4. Distribute Form 1099 to independent contractors and file with the Internal Revenue Service.
Provide each contractor or vendor with one copy of Form 1099-NEC, and submit all Forms 1099-NEC with the IRS. If necessary, you’ll also have a copy to transmit to your state’s tax agency. After you’ve double-checked the 1099 forms for correctness and completeness, send them out. Businesses may hand-deliver, mail, or email Form 1099-NEC to their contractors electronically. If you’re filing with the IRS, you may either send in paper documents or submit them online.
The following are some suggestions for submitting Form 1099-NEC with the IRS:
- Using the downloaded PDF: From the IRS website, you may download Form 1099 PDF to make copies for your contractors and records.
- For sending to the IRS, use the official “red” version: The IRS highly encourages companies to use the official form of Form 1099-NEC, which is printed in red ink and is easier for the IRS to scan into their systems. The official version of Form 1099 is available for free on the IRS website.
- For e-filing, use payroll software, an accounting application, or an accountant: If you want to file your Forms 1099 yourself, you’ll need to utilize e-filing software or collaborate with someone who has access to tax software.
- When forwarding to the IRS, include Form 1096: If you’re shipping your forms to the IRS, use the official “red” version of Form 1096 as a cover page, informing them how many 1099 forms you’re submitting and other information.
Examples of Form 1099-NEC
We show you how to fill out Form 1099-NEC in two different ways. A 1099 for an outside consultant is our first example. We demonstrate a circumstance in which a Form 1099-NEC is not necessary since the amount paid is less than the reporting level in our second example.
Scenario 1 of 1099 Reporting: 1099 Form Is Required
Mary works as a human resources (HR) consultant on her own. Mary was hired by your company to set up your human resources information systems and teach your employees on how to use them. She is a self-employed individual.
Mary received $50,000 in non-employee remuneration from your company in 2020. Because $50,000 is more than the $600 level for non-employee remuneration, your company must submit a Form 1099-NEC.
Box 3 shows $50,000 in non-employee remuneration. Mary will have to claim $50,000 in taxable earnings on her tax return as a result of this.
Here’s an example of a Form 1099-NEC you may send to Mary:
For an independent contractor, an example of a correctly completed Form 1099-NEC is shown.
Form 1099-NEC Is Not Required in Scenario #2 of 1099 Reporting
Chris is a QuickBooks ProAdvisor who works on his own. Chris was hired by your company to set up your QuickBooks files and instruct you on how to use it. Chris additionally double-checks your financial accounts every quarter to make sure you’re on track. Chris is a self-employed contractor.
Chris received $599 in non-employee pay from your company in 2020. Your company is not obliged to submit a Form 1099-NEC for Chris since his pay is less than the $600 level for non-employee remuneration.
Other 1099 Forms That Are Frequently Used
Form 1099 comes in a variety of formats. The most frequent form for small and mid-size firms is Form 1099-NEC, which is used to record payments to independent contractors. Prior to 2020, however, the 1099-MISC was the most frequent.
The following are examples of Form 1099s used by small and medium-sized businesses:
- Businesses issue Form 1099-MISC to record various non-employee payments other than those to contractors, such as rentals, awards, and so on.
- Corporations use Form 1099-CAP to record changes in corporate control and capital structure.
- Corporations and financial institutions produce Form 1099-DIV to record dividends paid to shareholders; C-corporations may be required to provide this form to their shareholders.
- Companies and financial institutions may be required to use Form 1099-INT to record interest payments made to people or partnerships; businesses may be required to use this form to report interest paid to individuals or partnerships.
1099-MISC is a tax form issued by the Internal Revenue Service.
Let’s look through when you’d need to submit Form 1099-MISC, as well as the revised instructions and structure, because it was the most common 1099 utilized by companies prior to the 2020 revisions. Remember that Box 7 is no longer utilized for non-employee remuneration and will be omitted from this version of the 1099. If you need to record contractor payments, use Form 1099-NEC.
If you file by mail, you must file by March 1; if you file online, you must file by March 31.
The following are the minimal thresholds at which firms must file 1099-MISC forms:
The following are the instructions for submitting a 1099-MISC:
Rents (Box 1)
If your rent payments totaled $600 or more for the calendar year, you must report them altogether. This covers office and warehouse rent, as well as machine and equipment rentals.
Royalties (Box 2)
If you received a total gross royalty payment of $10 or more throughout the calendar year, you must report it. Payments to license intellectual property such as patents, copyrights, or trademarks are examples of royalties. Fees paid by a publisher to an author or literary agency are also included in royalties.
Box 3: Other Sources of Income
On Form 1099-MISC, report payments of $600 or more for prizes, awards, and certain other sorts of payments that don’t fit into any other category.
The following are some of the other sorts of payments recorded in Box 3:
- Prizes and rewards, including non-cash goods’ fair market value
- Payments paid to a former employee who has since died (see Page 5 of the 2020 Instructions for Form 1099-MISC)
- Tribal members get payments from Indian gambling proceeds (see Page 4 of the Instructions for Form 1099-MISC)
- Payments received for taking part in a medical research study
- Payments to former self-employed insurance salesmen who were laid off
- Damages for non-physical injuries and diseases are known as punitive damages (see Page 5 of the Instructions for Form 1099-MISC)
Box 4: Withheld Federal Income Tax
In this box, type backup withholding. Even if the payment amount is less than the threshold, you must submit a Form 1099-MISC if you withheld any federal tax from a non-employee payment.
Box 5: Profits from Fishing Boats
Enter an individual’s portion of the total revenue from a fishing catch sale. Report monetary payments of up to $100 each trip that are conditional on a minimum catch and compensated for additional jobs such as mate, engineer, or chef. Do not record any earnings that should have been reported on Form W-2.
Medical and Health-Care Payments (Box 6)
Payments of $600 or more made in the course of business to doctors, dentists, and other medical or healthcare service providers must be reported. Individuals, partnerships, corporations, and limited liability companies (LLCs) all get 1099-MISC forms with payments of this sort.
Payments from medical and health-care insurers to health-care providers are also included in this box. Payments to pharmacies for prescribed medications are not needed to be included.
Box 7: $5,000 or More in Payer Direct Sales
If your company sold $5,000 or more in consumer items to a person or partnership for resale in a non-retail setting, mark box 9. This is usually reserved for Amway distributors and other direct sales organizations.
Substitute Payments in Place of Dividends or Interest (Box 8)
Substitute payments in place of dividends or tax-exempt interest of $10 or more must be reported. When dividends or tax-exempt interest is received on a security while it is on loan, stockbrokers and financial institutions must disclose substitution payments.
Crop Insurance Proceeds (Box 9)
Crop insurance proceeds of $600 or more paid to farmers are reported in Box 10 by insurance firms. However, if farmers told the insurance provider that expenditures had been capitalized for tax reasons, this sum does not need to be declared.
Gross Proceeds Paid to an Attorney (Box 10)
Payments of $600 or more to an attorney or lawyer must be reported. These must be reported even if the money was paid to a business and the services were provided on someone else’s behalf.
Blank Fields 11. Boxes
This field does not need any information, so leave it blank.
Deferrals under Section 409A
Businesses are not required to fill out Box 12a in most cases. Certain forms of non-qualified deferred compensation arrangements are covered under Section 409A. Please see Page 7 of the 2020 Instructions for Form 1099-MISC for further information.
Excess Golden Parachute Payments (Box 13)
In this area, enter any extra golden parachute payouts. In general, an excess parachute payout is any sum that exceeds the individual’s gross income over the previous five years’ average remuneration for services. Page 7 of the 2020 Instructions for Form 1099-MISC has extra information.
14th box Deferred Compensation for Non-Qualified Employees
Non-employees must report sums deferred as part of a non-qualified deferred compensation plan that constitute taxable income. This should not be used for employee deferred compensation: Instead, it’s reported on Form W-2. For further information, see Page 7 of the IRS’s Instructions for Form 1099-MISC.
15-17 are the boxes. Information about the State
For firms that are obliged to submit copies of Form 1099-MISC with state tax agencies, these boxes must be filled out.
Frequently Asked Questions about Form 1099 (FAQs)
The basic rules for Forms 1099-NEC and 1099-MISC have been covered. There’s a lot more to say about IRS Form 1099.
Small company owners often raise the following questions concerning Form 1099:
Is it possible to print and file Form 1099 directly from the IRS website?
Fill in and print Copies 1, 2, B, and C, which are for your company and contractors, using the download version of Form 1099-MISC. However, Copy A for the IRS must be obtained directly from the IRS and cannot be printed from the online PDF.
Downloads of 1099 forms for tax years 2019 and 2020 are now available:
What Are the Consequences of Not Sending a Form 1099?
The penalty is calculated based on when you submit Form 1099 to the IRS. If you submit Form 1099 within 30 days after the deadline, you will be fined $50 per form. If you file before August 1st, the penalty is $100; if you file after August 1st, or if you don’t file at all, the penalty is $270.
Conclusion
To record different forms of payments, businesses may be required to submit Form 1099. If the firm paid $10 or more in royalties or $600 or more in remuneration to non-employees, they must provide copies of Form 1099-MISC to the IRS and contractors. Payments paid in the previous calendar year must be reported on Form 1099-MISC by January 31.
Consider utilizing payroll software to assist you in producing and mailing 1099 forms to your independent contractors. You may automate payments and tax form preparation for only $6 per contractor every month (both W-9 and 1099 forms). You won’t owe Gusto during those months since you won’t have to pay your contractor. Today is the last day to sign up for a free trial.
Gusto is a great place to visit.
For 2020, the IRS Form 1099 Reporting will have a new requirement for small business owners. The new form will require more information and less paperwork. Reference: 1099 reporting requirements.
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