When Do You Need to File Form 1099-MISC?
Form 1099-MISC is a form for reporting the summary of yearlong earnings for the miscellaneous compensations received for the services rendered as an independent contractor or freelancer. This compensation is also known as the non employee compensation. Through this form, the Internal Revenue Service (IRS) and other government agencies of United States receives the information of the person mentioned in the form on how much taxable income he has earned in an year. The Form 1099-MISC is furnished by both the parties, the payee and the payer. There are some inclusions and exclusions which we will discuss further. Examples of independent workers such as a graphics designer, Web developer, cleaning service, freelance writer, landscaping or other self-employed provider.
The Form 1099-MISC is the main weapon of IRS to fight against underreporting by the self-employed and there are certain penalties for the persons who fail to file return of 1099-MISC. There is an IRS website which guides you with 1099 filing requirements to file the return online or offline. Several agencies provide 1099 filing service, you can take their help or you can choose the option convenient to you.
Reporting & Filing Requirements of Form 1099-MISC
- If you paid the amount $600 or more in a year to an independent contractor who rendered their service for your business or trade purpose carried for profit or gain. No personal payments for personal service should be included. For example, if you hire a person for photography of your business conference, it comes under the purview of 1099-MISC but if the same photographer is paid by you for photography of your anniversary, it does not come under the purview of 1099-MISC.
- If you are a broker and have employed independent contractors for your business expansion and you are making payment of $600 or more in a year.
- Report gross royalties of $10 or more in a year from intangible property such as patents, copyrights, trade names, and trademarks.
- If you are in the trading business of fish and you procure by making bulk payments of $600 or more in a year for resale then you require to furnish the details on form 1099-MISC.
- If you made the payment of the deceased employee wages within a year of death or a year later to the beneficiary then you must report it on form 1099-MISC.
- Payments made to law firms or legal service provider of $600 or more shall be paid in the course of your trade or business required to be reported.
- Crop insurance proceeds of $600 or more paid to farmers by insurance companies to be mentioned in the form.
- Real estate rentals paid for office space, Machine rentals, Pasture rentals of $600 or more in a year is required to file form 1099-MISC.
- As a self-employed individual, you need to furnish the form 1099-MISC if you receive income of $400 or more from all sources in a year.
- People and companies who makes payment of miscellaneous income must furnish form 1099-MISC to the payee by the end of the following tax year in which year the income was paid.
Companies or individuals who fail to provide the form 1099-MISC on the stipulated time, then they are liable for penalties from $30 to $100 per form.
If the payee who receives nonemployee compensation does not report income on their income tax return, then he is also a perfect candidate for penalty. The penalty is on higher side i.e. 20 percent of the underpayment.
How to File
- You can file the form 1099-MISC on your own and mail to IRS and your vendors or you can take aid of QuickBooks, Sage, Xero and TurboTax.
- Appoint a CPA or tax preparer to handle the filing and distribution of form 1099-MISC if you are using their other services for your firm.
- Use 1099 filing service if you find paperwork complicated.
For more details, visit the IRS website to follow the instructions or take the help of your Tax Advisor for 1099 filing requirements.