If you pay independent contractors $600 or more annually, you must report those payments to the IRS on Form 1099-NEC. The process is fairly simple if you only need to send one or two, but it gets more complex if you work with many different freelancers. You must ensure you fill out the correct form and meet the IRS filing deadline to avoid fees or penalties.
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Understanding different types of 1099 forms
The IRS currently has 21 different versions of Form 1099, but the two primary types you need to know are the 1099-MISC and the 1099-NEC. You need to fill out Form 1099-MISC if you paid more than $600 in the following:
- Rent.
- Prize winnings.
- Attorney fees.
- Medical and healthcare payments.
- Other income payments.
In comparison, you'll file Form 1099-NEC if you paid over $600 annually to an independent contractor. An independent contractor is someone you hire on an as-needed basis to complete projects for your company. However, it's not required if that individual is registered as an S corporation or a C corporation.
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Deadlines and penalties for Form 1099 filing
The deadline for filing Form 1099 is January 31 or the following Monday if the deadline falls on a weekend. If you miss the deadline, you'll have to pay a fine ranging from $60 to $310 depending on how late you are. If the IRS determines that you intentionally disregarded the filing deadline, you'll have to pay a $630 fine.
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IRS-approved online tools can make it easier to issue 1099 forms.
How to issue 1099s
The IRS allows you to submit tax forms electronically or through the mail. If you file Form 1099-NEC on paper, you must submit it with Form 1096, Annual Summary and Transmittal of U.S. Information Returns. However, this form isn't required if you file electronically.
If you send Form 1099 electronically to your contractors, you must meet the following requirements:
- Receive written consent to send the contractor their statement electronically.
- Inform contractors that you'll provide a paper copy if they don't consent to an electronic form.
- Explain how they can withdraw consent, get a paper copy, and update their information.
- Give your contractors a list of software and hardware needed to view, print, and save their 1099.
- Provide details on what and how long the consent form lasts.
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Consider using low-cost online services
IRS-approved online tools can make it easier to issue 1099 forms. The vendors offer additional features, like a taxpayer identification number (TIN) match service, free printable versions, and IRS e-filing services.
Some even integrate with accounting tools like QuickBooks, Zero, and Bill.com. You may find the following services helpful:
- Avalara 1099: It costs $2.99 for up to 15 forms, and the price decreases with the number of statements you buy. Avalara 1099 also offers national and foreign postal mail services.
- TaxBandits: Pricing starts at $5.95 per form with a federal e-file. TaxBandits offers an online retrieval option for 50 cents or more per 1099.
- efile4Biz: It costs $3.25 for an e-file, or you can choose print and mail options. Additionally, efile4Biz has direct-to-state filings.
- eFile360: Pricing starts at $2.90 for one e-file form. Plus, with eFile360, you can verify TINs.
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Complete and send Form 1099
There are two different copies of Form 1099-NEC: Copy A and Copy B. Copy A is the version you'll submit to the IRS, and Copy B is the form you'll send to your contractor. Both copies must be submitted by January 31 regardless of whether you file electronically or by mail.
You can also upload 1099s to a secure website or use a third-party service. In either case, you must inform recipients when their statements are posted and are ready for viewing. The IRS requires forms posted to a website to remain available until October 15 of the year after you originally paid the contractor.
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This article was originally written by Jessica Elliott.
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