Do I Need to Send a 1099 (or Should I Expect to Receive One)?
Did you hire any Contractors this year in your Business? Curious as to if you need to issue them a 1099-misc for their Services? When and where to send the IRS Form 1099 can be confusing, especially if you work with a lot of vendors and contractors or if you do contract work yourself. Here are some guideline on what to expect, but always consult your tax advisor about your specific situation if you have questions.
What is Form 1099-MISC?
1099-MISC is a form that captures miscellaneous service payments (like the name suggests) to anyone besides a C corporation. If you paid money to an individual, partnership, or a professional service provider like a lawyer or accountant, you may need to send them a 1099-MISC. Generally, payments for products don’t require a 1099, only services.
Think of it as a W-2 for non-employees. This is how the IRS guards against contractors who try to hide income by not claiming it. Since issuers will claim the expense for a tax deduction, the IRS can match it to ensure that the receiving party is also claiming that payment as income.
Who do I send it to?
If you hired someone to design your website, write some content, paint your office, or keep your books, they’ll likely need a form 1099-MISC sent to them by the January 31st deadline. Keep in mind, there is an income threshold of $600, so if you paid less than $600 to a particular service provider, you don’t need to issue them a 1099-MISC.
In addition to your usual service provider suspects, you may also need to issue a 1099-MISC for the following types of payments:
And, oddly, fishing boat proceeds.
Who would send one to me?
Just like above, if you receive over $600 in payment for any of these services, and are not a C corporation, you should be receiving a form 1099-MISC in the mail by January 31st, which you’ll use to calculate your income for tax purposes. If you work as a contractor/freelancer and have a lot of clients, you may be getting a pile of these, so make sure you keep track. It’s best to have a solid bookkeeping system in place so you can see exactly who paid you more than $600 and be on the lookout for those forms.
One More Exception
All of the information you’ve just read applies to cash, checks, and ACH bank payments but not credit cards. If you received payments by card or from a payment processor like Paypal, you’ll be getting a form 1099-K from that payment processor. That is if your payment exceed the threshold, which is higher for 1099-K. You have to claim the income either way, you just won’t receive the form if you’re below the threshold.
You may be wondering if there are 1099 forms for things that aren’t so miscellaneous. There are. There are actually 32 different 1099 forms, for various types of specific income. Most are so specific that you’ll never see one, but you may need to ask your tax advisor about the following if you have these specific circumstances:
1099-C for large cancelled debts from a financial institution
1099-CAP for a corporation receiving property from a major change of capital structure
1099-DIV if you pay dividends on stock you issued
1099-S for real estate proceeds, except a private residence within certain limits
For the rest of us, the 1099-MISC is all we need to worry about, and you don’t even need to worry about that, just ask if you’re not sure.