Filling out form 1099-Misc is essential for businesses to report all payments made to independent contractors. Failure to do so may result in fines or penalties. Even if there are a lot of instructions on how to fill out 1099 it’s still not the simplest process and it’s easy to make errors. For that reason, most people prefer to use professionals help with this form. But with the right instructions and a bit of patience, you will be able to fill it out by yourself.
In this article, you will learn more about Form 1099-Misc and hopefully will fill it out with no mistakes. We also can recommend you an article on how to get 1099-Misc.
What is Form 1099-Misc
Form 1099-Misc is used to report miscellaneous income that is not wages, salaries, tips, or payments subject to backup withholding. The most common types of income reported on 1099-Misc are royalties, non-employee compensation, and self-employment income.
Anyone who has miscellaneous income that is not subject to backup withholding should fill out this form. If you paid independent contractors or freelancers more than $600, you are required to issue a Form 1099-MISC. You must issue the form by January 31st.
This includes temporary workers, consultants, attorneys, and computer professionals. You also need to include payments to corporations that provide services.
When not to use a Form 1099-MISC
You do not need to use a Form 1099-MISC if you paid independent contractors and freelancers less than $600 total.
You also do not need to use it if you paid to corporations. In this case, you should file Form 1099-INT.
Form 1099-MISC vs. Form 1099-NEC
In most cases, you are required to submit Form 1099-MISC to the IRS when you have received payments of at least $600 from anyone “non-employee” in a calendar year. However, you are not required to report payments made to corporations with a foreign address. Instead, you must report these payments on Form 1099-NEC. Form 1099-NEC is a non-employment compensation form, which you must use to report payments to foreign persons.
Form 1099-MISC and Form 1099-NEC are both considered information returns. The IRS uses information returns to match income information reported by businesses with the income reported by taxpayers on their tax returns.
How to fill out Form 1099-MISC: Quick Guide
How to Fill Out 1099-MISC?
Filling out 1099-MISC, you should provide company information, including a valid company name, address, ZIP, etc. Next, enter your EIN/SSN and EIN/SSN of the recipient. After entering the company and recipient’s information, fill out fields 1-18 with:
- federal income tax;
- other income;
- Medicare payments;
- state income;
You have to fill several copies for the IRS, state tax department, recipient, recipient’s state income tax return, and for the payer. The instruction for the recipient and payer are attached to the form. You should read them attentively to file the forms properly.
How to fill out Form 1099-Misc: Step by step Guide
Step 1: Gather all the information
Before you fill out a 1099-Misc, prepare the information you need to complete the form. The payer’s name and address are always required. The payer’s tax ID number (SSN or EIN) is required if one has been assigned. The payer’s address is required if the payer is an individual. The total payment made to the contractor is required.
The payer’s and contractor’s names and addresses must match IRS records. If they don’t match, the form must be completed anyway. If this information is found to be incorrect, the payer will be audited.
The payer’s and contractor’s Tax IDs are provided on their respective tax returns, so those should match IRS records. Different rules apply to corporations than to LLCs, S-corporations, partnerships, and other business entities.
Step 2: Fill out Payers and Recipients information.
If the payer is an individual, put the payer’s name and address. If the payer is a business entity (e.g., corporation, LLC, partnership, etc.), put the name of the entity and the address and Tax ID of the entity. If the payer is an LLC, put the name of the LLC and the address of the LLC (not the members). If the payer is an S-corporation or partnership, put the name of the entity and the address of the entity. Box 1a, name of payer, is the name of the party who paid you. Box 1b, payer’s TIN, is the payer’s Tax ID number.
Step 3: Enter Account Number, if one is assigned.
The IRS does not require the account number to be on the form, but if the payer is an individual, you must use an account number if you have one. If the payer is a business entity, you must use an account number if you have one. If you don’t have an account number, enter N/A. If you have an account number, enter it in box 6.
Step 4: Enter Paid Totals in the boxes 1 – 17.
Box 1. Rent is rent received. You must fill in box 1 if you received any rent. Even if the rent was less than $600, fill in box 1. The IRS allows you to use the cash method of accounting, and if you do, you can ignore this box. If you use the accrual method, you must fill in box 1. You must use a reasonable method for determining the rent.
Box 2. Royalties is royalty income. You must fill in box 2 if you received any royalty income. Even if the royalty income was less than $600, fill in box 2. The IRS allows you to use the cash method of accounting, and if you do, you can ignore this box. If you use the accrual method, you must fill in box 2. You must use a reasonable method for determining the royalty income.
Box 3. Other income is income other than rent or royalty income. You must fill in box 3 if you received any other income. Even if the other income was less than $600, fill in box 3.
Box 4. Federal income tax withheld is income tax withheld. You must fill in box 4 if you received any wages.
Boxes 5 to 17. are pretty much easy to understand. Just don’t forget to leave box 11 blank.
Form 1099-Misc should be filed with Form 1096 because Form 1096 is required to be filed under section 6050W(a). However, reporting on Form 1099-Misc is not required under section 6050W(a) and Form 1099-Misc is not included as part of the electronic data file.
Therefore, no penalty is imposed under section 6721 or 6722 for failure to file Form 1099-Misc. (ii) The penalty for failure to provide statements to recipients required under section 6050W(b) is imposed on the payer. However, the payer is not required to file Electronic Forms 1099 with the IRS
How to File Form 1099-Misc
e-File Form 1099-Misc:
You can e-File the form with the IRS. Go to this link and follow the steps. This is the most accurate way to File Form 1099-Misc to the IRS. If you are filing the 1099-MISC for a business, use the Business Filing Information link. If you are filing for a non-business (such as an independent contractor or an individual), use the Individual Filing Information link.
Mail Form 1099-Misc:
You can mail the form to the IRS and get a confirmation number IRS Form 1099-MISC can be mailed to: Internal Revenue Service P.O. Box 409101 Ogden, UT 8440.