If you’re a freelancer—or you’re a small business that hires workers—your tax filings may look a little different than those who receive standard W-2 forms.
Small business owners have several tasks to complete during tax season, and one important step is to provide 1099 forms to independent contractors. You will need to identify the workers who are contractorsUnderstand the process of filing Form 1099-NEC and file the forms correctly.
If you’ve provided Form 1099-MISC to contractors in previous years, you’re still in the right place. New Form 1099-NEC Replaced the 1099-MISC for reporting non-employment compensation.
Before we discuss exactly how to fill out a 1099 form, it’s important to understand what an independent contractor is and exactly what a 1099 form is. Read on to answer all your questions and make sure tax season is a breeze.
Who is considered an independent contractor?
Someone is considered an independent contractor if they are self-employed or contract out work to another business as a non-employee.
The The IRS provides guidance Determining whether a particular employee is an independent contractor or an employee is an important distinction because companies do not have to withhold income taxes or FICA taxes (Medicare and Social Security) from independent contractor payments.
Contractors who work as independent contractors can claim withholding, but the process is not required for all 1099 forms.
In making the decision, business owners should consider the following three criteria regarding the degree of control they have over the worker:
- behavior control: Does your small business have the right to monitor what an employee does and how they do their job?
- Financial control: Does your business have a say in the material aspects of the worker’s job? In other words, do you decide which expenses are reimbursed or who provides the necessary tools and supplies?
- Contractual relationship: Is there a written contract? Are benefits such as pension, insurance or vacation days part of this contractual obligation?
What exactly is a 1099 tax form?
A A 1099 is an IRS (Internal Revenue Service) tax form known as information return. There are several types of 1099 forms, and we’ll explain the main differences here.
How to file a 1099 form
Once you’ve identified who your independent contractors are and you’re sure your books are in order, it’s time to file the 1099-NECs. We will guide you step by step to ensure proper taxation.
Step 1: Understand the 1099 form
Businesses must provide a 1099-NEC to each contractor that is Paid $600 or more calendar year. Independent contractors must include all payments on their tax returns, including payments that total less than $600. Note also that non-employee compensation includes payments to individuals and partners.
A number of payments do not require a 1099-NEC, including:
- * Payments to a corporation, including a limited liability company, that is treated as a C corporation or S corporation for tax purposes. Business travel allowance paid to employees.
- * Payments for goods, freight or storage.
Payments through third-party networks, including by credit card, are reported Form 1099-K. If, for example, a business pays an independent contractor through PayPal, the contractor can receive a Form 1099-K from PayPal for those direct sales. For the 2022 tax year, the 1099-K reporting limit for transaction payments greater than 2,000 will remain in effect. From 2023, the required reporting threshold has been reduced A minimum of $600 in total payouts, regardless of the number of transactions.
use Accounting software Complete a Form 1099-NEC for each contractor and consult with a certified public accountant (CPA) about the 1099 forms your business must provide.
QuickBooks offers 1099 Electronic Filing Service QuickBooks with Payroll1 and QuickBooks Contractor Payments. When you use QuickBooks Payroll or Contractor Payments, your 1099s are automatically generated and filed for you electronically, saving you time and helping you prepare for tax season. You can file unlimited 1099s, including 1099-NEC and 1099-MISC2.
Step 2: Gather all the necessary information
Make sure you have all the necessary documents for each independent contractor you hire. Each independent contractor must have completed a W-9 before providing any services. They will provide the following information that is useful for completing 1099s:
- File the non-employee compensation 1099-NEC on Form 1 and list your company’s taxpayer identification number (TIN) as the payer’s TIN. You will also list your firm’s name and address in the upper left part of the form.
- List the recipient’s TIN, name and address.
- Enter federal and state income tax withheld, if applicable.
Finally, you’ll see a section that reports the state income received and your company’s state tax identification number. The IRS does not require this information, but many businesses include it to make it easier for the contractor to file state income taxes.
Step 3: Submit the 1099 form
When you file a 1099-NEC, you give copies of the form to different recipients:
- Send Copy A to the IRS with Form 1096which reports the 1099 forms issued to contractors and the total dollar amount of payments.
- Send Copy 1 to your state’s Department of Revenue.
- Give copy B to recipient (contractor).
- Keep copy C for your records; This confirms the salary expense you declare on your business tax return.
The deadline for filing Form 1099-NEC is On or before January 31 You must provide a Form 1099-NEC to each contractor and the IRS by this date. Many businesses e-file, and electronic filing makes it easier to meet filing deadlines.
It is also important to check state requirements. Some states require businesses to file 1099 forms with them, so check with your CPA if you’re unsure.
How to fill out a 1099 form online
The easiest way to file a 1099 form is electronically, and you can do it using the IRS Filing returns electronically (fire) system. Before you can do this, you must request a transmittal control code (TCC) and submit it at least 30 days before your 1099 is due. You can fill out a request for this Form 4419.
From there, the IRS will alert you with your TCC and you can proceed with your FIRE account.
QuickBooks Contractor Payments and QuickBooks Payroll allow you to save time and money and electronically file 1099s.
How contractors use Form 1099-NEC
Most freelancers and independent contractors use it Schedule C, profits or losses from the business to report self-employment income on their personal tax return. Here is the process for reporting earned income on Form 1099-NEC:
- Part 1 of Schedule C shows the income received by the contractor. The total amount received on all 1099 forms is placed on line 1, Gross Receipts or Sales.
- The subcontractor’s net gain or loss on Schedule C is disclosed on Form 1040, Schedule 1as additional income.
- The gross adjustments to earnings in Schedule 1 are posted as earnings Form 1040line 10a.
If any federal income tax was withheld on the 1099, that amount is also reported on Form 1040.
It can seem like a daunting amount of information and forms to fill out, so it’s okay if you’re still a little confused. Below are some common questions about the 1099 process that we are here to answer.
Who receives a 1099?
There are many types of 1099. But, any contractor who earned $600 or more in non-employment income during the tax year must receive a Form 1099-NEC. This can include anything from commissions to unpaid work. It is up to you as the business owner to issue these forms to your workers in the allotted time.
What if I don’t receive all my 1099 forms?
If you do not receive your 1099 forms by early February, contact your payer. If you still don’t see them by February 15th, you can call the IRS for help.
What if there are errors on my 1099 forms?
If there is an error or mistake on your 1099 form, such as an incorrect address, misspelled name, etc., contact your payer immediately and request a corrected form. If the payer has already filed a 1099 with the IRS, ask them to resend the corrected version.
Do I have to pay taxes on my 1099 form?
Usually, yes. However, there are some exceptions, so please consult a professional if you are unsure whether you need to pay taxes on your 1099 income.
When is the 1099 form due?
As of January 31, 1099 forms have been paid to taxpayers.
Spending tax season
Preparing and filling out 1099 forms can be tedious and time-consuming. While this may seem simple, the process can quickly become a headache if you employ multiple contractors.
Use this article as a guide to the process, but if you’re overwhelmed, look elsewhere for help. QuickBooks Payroll Help automate the process and save time and frustration. Hiring an accountant or tax preparer can also help manage the process.
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- Unlimited 1099s: 1099s are sent electronically only for the current filing year and for payments recorded in the system. excludes correction.
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