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As a small business owner, you’ve got a lot of responsibilities. You’re busy running your business, ensuring happy customers, and managing employees. The more you expand, the more you’ll have to do, primarily if you use contractors. We break down the complexities of tax forms, IRS forms and information returns, specifically the 1099-MISC and the 1099-NEC, and all filing requirements for small business owners to issue to independent contractors and freelancers.
Unlike salaried W-2 employees, contractors require a 1099 form to do their taxes, which you must provide. It might seem intimidating if you’ve never issued a 1099, but there’s no need to worry. We will explain what 1099s are and what you should do with them so you and your contractors are covered!
What is a 1099 form?
A 1099 form is provided to your non-W-2 employees.
What is the difference between 1099-MISC and 1099-NEC?
1099-MISC and 1099-NEC are the most common types of 1099s and the forms you will likely use for your non-salaried workers. 1099-MISC is for miscellaneous income payments, while 1099-NEC would be utilized for non-employee compensation.
How to Generate a 1099 Form as a Small Business
As a small business owner, there are several ways to generate the respective 1099 form that you need to issue to contractors who work for your company. As you can see below, there are more traditional paper approaches, online options, and working in-person or online with a virtual tax accountant.
Steps for Issuing a Form 1099
Now that we have detailed what a 1099 form is, how to generate it, the difference between a 1099-MISC and 1099-NEC, we break down the steps for small business owners to issue a 1099 form for their contractor employees.
Collect personal information from vendors/contractors
First, small business owners must gather contractors' information to issue the form 1099, which includes the following.
Complete the Copy A form for each vendor/contractor and file it with IRS
Next, small business owners must complete the Copy A of Form 1099-NEC, which must be submitted to the IRS by January 31, regardless of whether you file electronically or by mail.
When you file a physical Form 1099-NEC, you must obtain a physical Form 1099-NEC, fill out Copy A, and mail it to the IRS for it to be filed successfully.
Provide Copy B to vendor/contractor
After completing Copy A form and filing it with the IRS, the next step is to send Copy B to your independent contractors by January 31. To do this, you can download and print Copy B from the IRS website and send it to each of your independent contractors.
Save a Copy for your Records
Finally, ensure compliance and organization for your small business and your financial records by saving a copy of all of the 1099 forms.
Who should receive a 1099-MISC or a 1099-NEC Form?
The IRS has created several versions of the 1099 form. While you will likely use a 1099-MISC or a 1099-NEC, your workers may require a different variant. Some of the other 1099 forms include the following:
Steps needed to take before issuing 1099’s
To generate a 1099, you will need your contractor’s details. These details include:
You can find this information via a contractor’s W-9, which you should request from every non-salaried worker.
With the vital information the W-9 captures, you can provide a 1099 to your contractor. We recommend issuing a W-9 to all contractors as they begin providing their services to your small business. That way, you will always have their information on file.
What’s the Deadline to Issue 1099 Forms as a Small Business?
The deadline for filing 1099 forms for your contractors is January 31, 2023.
1099 FAQs
What’s the minimum amount of money required to issue a 1099? Who qualifies for a 1099?
If you’ve paid a contractor over $600 within a calendar year, you should issue a 1099 form to them. If you paid them less than $600, you do not need to provide a 1099 form to that worker.
Is a 1099 required for someone you paid in cash?
Many small business 1099 requirements exist, but payment type does not matter. If your 1099 worker was paid $600 or more within a calendar year, they should receive a 1099 form. Whether the payments were made in cash, check, or via credit card, payment does not matter.
What’s the penalty for not issuing a 1099?
The penalty for failing to issue a 1099 is $250 per violation.
Do I have to issue a 1099?
You must issue them if your contract workers qualify for a 1099 form. The deadline in 2023 is January 31, and you will be penalized $250 per worker.
When do I have to issue a 1099 form?
The deadline for issuing 1099 forms is January 31st of each year. A copy of the form must also be filed with the IRS by that date. If you fail to issue a required 1099, you may be subject to penalties from the IRS.
What’s the difference between 1099-NEC and 1099-MISC?
The IRS uses the 1099-MISC and 1099-NEC to report non-employee taxable payments. The 1099-MISC is used to report payments not subject to self-employment tax. Form 1099-NEC is for reporting non-employee compensation, usually subject to self-employment tax.
Does an employer have to provide 1099?
The 1099 form reports non-employment income to the Internal Revenue Service (IRS). Businesses must issue a 1099 form to a taxpayer (other than a corporation) who has received at least $600 or more in non-employment income during the tax year.
What’s the minimum amount of money required to issue a 1099? Who qualifies for a 1099?
Businesses must issue a 1099 form to a taxpayer (other than a corporation) who has received at least $600 or more in non-employment income during the tax year.
When do I have to issue a 1099 form?
Beginning in tax year 2020, businesses will complete a 1099-NEC, or Nonemployee Compensation, to report nonemployee payments of $600 or more. The 1099-NEC form has replaced what used to be recorded on Form 1099-MISC, Box 7.
You must complete and send a 1099-NEC form to any independent contractors or businesses to whom you paid $600 or more in fees, commissions, prizes, awards, or other forms of compensation for services performed for your business.
Work with accountants who specialize in 1099 forms fpr Small Businesses
1-800Accountant offers a robust suite of financial services perfect for small businesses with 1099 employees. Our services include small business taxes and advisory, entity formation, bookkeeping, and payroll, which allows you to focus your time and energy on growing your business. At the same time, we handle your 1099s and the rest. We also regularly produce content designed to help and guide your 1099 workers. Our dedicated virtual accounting and tax specialists offer guidance on tax returns, tax due dates, federal income tax, and all tax filing requirements.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.