What Qualifies a 1099 Contractor? Have you hired a contractor to work for your business? Then you need to issue a 1099 tax form to them. Before issuing a 1099 tax form to the contractor, you need to follow the IRS guidelines to check whether the person is a 1099 contractor or not.
Getting tensed? Don’t worry! We provide you detailed information about IRS Form 1099 contractors. We’ll let you know about IRS 1099 income, responsibilities of payers to issue a 1099 tax form.
Who are called as 1099 contractors?
A 1099 contractor is someone who does work for your business but not like an employee. Examples include independent contractors, attorneys, non-employees, investors, retire employees etc.
If you hire a 1099 contractor to perform work at your business, don’t include them on your Businesses payroll. They are not an employee, so they don’t receive hourly or salary wages for each payroll period. A 1099 contractor is not your businesses payroll, don’t withhold taxes from their payments. They are responsible for withholding taxes from their income.
What is an IRS 1099 income?
1099 income are the amounts you give to the 1099 contractors in exchange for their work. A 1099 payment can also be in the form of miscellaneous income or non-employee compensation.
Business individuals who hire a contractor for doing the work on course of their business or trade pay the IRS 1099 income. The income paid to the individual is calculated annually on 1099 tax forms. every business individual report the income paid throughout out the year other than salary to the IRS using these tax forms.
Payers reporting responsibilities of 1099 tax form
Before a 1099 contractor performs work for your business, you must give them a copy of the W-9 Form to fill out. Form W-9 is a request for Taxpayer Identification Number, which gives you the 1099 contractors’ information. This Form helps the payer to report their payments to the IRS. The responsibilities of a taxpayer when filling out Form 1099 online is given below:
- Payer need to identify whether the payments made are with contractors or not.
- Identify the type of payment made to the contractor i.e., rent, interest, dividend, royalties etc.
- Choose the appropriate 1099 tax from among the 1099 series.
- Request W-9 Form the contractor before starting the first payment.
- Fill in the appropriate 1099 tax form to report the payments made throughout the year to the IRS.
- Send the 1099 Form copy to the contractor and to the IRS in-time to reduce unwanted penalty risks.
When is a contractor eligible for a Form 1099?
Form 1099s are not complicated as you may think. It’s as simple as sending out a W-9 Form, getting some information from your contractor, and report the money you’ve spent. So, whom to send out a Form 1099 depends on the type of the business you do and the type of the contractor you’re dealing with.
Form 1099 MISC
If you pay a contractor more than $600, then the contractor is eligible to receive a 1099 MISC. Or else when you pay $10 or more in royalties, you’ve to send this Form.
IRS Form 1099 INT
When you pay someone $10 or more as interest in a tax year, then the person is eligible to receive 1099 INT tax form. This Form is usually used by banks, brokerage firms, credit unions.
New Form 1099 NEC
You need to issue Form 1099 NEC to non-employee who receive compensation of $600 or more for performing service throughout the year.
Circumstances to issue 1099 Form to sole proprietorship and LLCs
Given below are the circumstances to issue a 1099 Form:
If your contractors are sole proprietors who don’t have a business entity setup for their business, then issue a 1099 Form for them. This is one of the most common 1099 situations. They are filing taxes as individual people who don’t have a business structure. They are not classified as employees. So, they don’t get a W-2 Form. These sole-proprietor 1099 contractors need to get a 1099 to record and report their income for tax purposes.
In some cases, if your contractors are set up to do business as LLCs, it gets a bit more complicated. Not all LLCs are set up for the same tax treatment. Whether or not you’ve to file a 1099 form your LLC contractor depends on how their LLCs file their taxes.
- If your contractor files taxes as a “single-member LLC”, they are considered a disregarded entity. In this case, the LLC can be considered as a person for tax purposes and you should file a 1099 for them.
- Suppose your contractor files taxes as a “corporation”, they are treated as a corporation for tax purposes. This means that they don’t have to receive a 1099 tax form.
Important dates to issue 1099 tax Forms
Each and every individual who pays a contractor throughout the year need to issue a copy of the Form 1099 to the IRs and to the contractor. Submit 1099 Copy A to the IRS within March 31st, 2021 when filed electronically. Furnish the paper forms of 1099 Copy A to the IRS no later than March 1st, 2021. Copy B of the Form is issued to the respective contractors on or before February 1st, 2021.
Did you get the required information about who is a 1099 contractor? Issue the form if the 1099 conditions are met. 1099 NEC online Form is an IRS certified E-file provider where you can file your 1099 tax forms easily and conveniently.