May 30, 2015

Fast Answers About 1099 Forms for Independent Workers – UPDATED for 2015


IRS building - 1099 forms

As a U.S. business owner, if you hire independent contractors and service providers, you probably will have to issue a special tax form to them, called the 1099.

Keep in mind that there are several variations of the 1099 form.  For example, there’s the 1099-INT for interest income that you may receive from your bank.  For today’s purposes, we’ll limit this article to the 1099-MISC form.  That’s the form that small businesses use to report miscellaneous income paid to others during the year.

Let’s go through some commonly-asked questions and answers (we’ve updated this information for 2015):

What type of income do I report on a 1099 form?

The 1099-MISC should be used for reporting payments to independent workers — not payments to employees. For employees, you use form W-2 instead to report employment income you paid them.

Independent workers are typically self-employed individuals or small service firms that you hire as independent contractors.  Examples of independent workers might include a graphics designer, Web developer, cleaning service, freelance writer, landscaping or grass cutting service, forum moderator or other self-employed provider.  The key is that the independent worker is self employed — and not your employee.

You also use the 1099-MISC for reporting payments made to unincorporated business service providers, attorneys and partnerships.

What is the $600 threshold?

You are required to complete a 1099-MISC reporting form for an independent worker or unincorporated business if you paid that independent worker or business $600 or more.  You add up all payments made to a payee during the year, and if the amount is $600 or more for the year, you must issue a 1099 for that payee.

If the amount you paid the worker totals less than $600 for the tax year, then you are not required to issue a 1099 form.

Note:  there are special threshold rules for reporting certain other types of payments, such as payments made to attorneys, fishing boat proceeds, and sales of consumer goods for resale.  You’ll need to consult the IRS 1099-MISC form instructions for details on reporting those types of payments.   For purposes of this article, we are speaking only of payments to independent workers or unincorporated business service providers.

When does the 1099-MISC form have to be issued?

There are two important dates to remember.  One is the date for mailing the 1099 form to the worker.  The other is the date for reporting to the IRS.

A. Mailing form 1099 to the worker

February 2, 2015 is the deadline for furnishing the 1099-MISC forms to independent contractors and service providers you paid money to during 2014.  Mail a copy of the 1099 form to the independent worker or service provider by that date.

Normally the date is January 31 of each year.  However, because the 31st falls on a weekend, the date is extended to the next following business day — in this case, February 2nd.

Tip:  mark that deadline on your calendar right now.  That way you are less likely to forget and have to scramble at the last minute.

Another tip: It’s a good idea to check in advance with each payee to make sure you have the payee’s current address.  This will save you extra work.  Why?  Because the payee will contact you if he or she does not receive the 1099 in the event it’s not forwarded, and you’ll just have to issue a copy all over again.  The Post Office is not as fast or reliable when it comes to forwarding mail, as it used to be.

Can you send 1099s via email?  All the tax pros we talked with refused to be pinned down on whether email is sufficient for recipients.  Note that the IRS uses the word “furnish” rather than “mail.”  However, the IRS does not define what “furnish” means.

B. Reporting 1099s to the IRS

March 2, 2015 is the deadline to file the 1099 information with the IRS, if you file by paper.  That date is extended to March 31, 2015 if you do electronic filing of 1099s.

Depending on state law, you may also have to file the 1099-MISC with the state.  Greatland has an excellent chart showing various state law deadlines.

(Note: there are different dates for certain other categories of payments such as payments to attorneys. Please consult the Form 1099-MISC instructions for dates for other situations.)

See the example image below for how to complete the 1099 MISC form.

Non-U.S. workers:  Do I need to issue a 1099 to a foreign worker?

If you hire a non-U.S. citizen who works remotely via the Internet from another country, generally speaking you do not need to file a 1099 for that person.

For example, let’s say you hire a freelance writer who is a Brazilian citizen.  The freelance writer performs all services (i.e., writes the articles) outside the U.S. from the writer’s home in Brazil, and earns $900 for the year.  In that case, you probably don’t need to issue a 1099 to that foreign worker.

However, if the foreign worker performs any work inside the United States, you would need to file the 1099.

It is your responsibility to verify that the worker (1) is indeed a non-U.S. citizen, and (2) performed all work outside the United States. For that purpose, in the future you might want to have that foreign worker fill out, sign and return to you Form W-8BEN.

Sample of completed 1099 MISC form for independent contractors

Sample of completed 1099 MISC form

[click for larger image]

Corporations:  Do I need to issue 1099 forms for payments made to corporations?

No, in general you do not need to issue 1099 forms for payments you made to a corporation.  For instance, if you pay a corporation that, say, provides Web design services or some other business service, you do not need to issue a 1099.

Keep in mind that an LLC or limited liability company is not the same as a corporation.  In general, you are expected to send 1099-MISC forms to most small-business LLCs.

(How can you tell the difference?  An LLC usually has the letters LLC or Ltd.  at the end of the company name.  A corporation name typically ends in Inc. or Corp. However, the payee should indicate the type of entity it is when it fills out and gives you a W-9 form in advance — that’s the best way to tell.)

Note, there are a few limited exceptions to the corporation rule.  For example, if the payment is to a corporation for legal services, you must report those on the 1099.  The IRS’s 1099 instructions outline the exceptions.

PayPal and credit card payments: What if I paid my independent workers or service providers electronically?

If you paid unincorporated businesses or independent workers electronically, such as through PayPal or a credit card, then you are not required to issue a 1099-MISC to that payee.

Instead, the reporting responsibility lies with the electronic service, which may issue a 1099-K.  However, some small businesses elect to send the 1099-MISC forms anyway, in an abundance of caution.

See more in our discussion: 1099-K versus 1099-MISC for electronic payments.

Personal payments:  Do I need to issue 1099s for payments made for personal purposes?

No. You are required to issue 1099-MISC reports only for payments you made in the course of your trade or business.  (If you run a non-profit organization, that’s considered a business for purposes of 1099s.)

Let’s say that you pay a landscaper who is a sole proprietor to do grass cutting and mulching at your home, and it has nothing to do with your business.  You don’t have to issue a 1099 to the landscaper, because it was a personal payment.

How do I issue 1099-MISC forms and where do I file them?

As the payer, you complete the form and send a copy to the recipient.  You file the form with the IRS, and you may also have to file with state tax authorities.

There are a number of ways to do this:

  • File everything on your own. You can complete the paperwork on your own, and mail it to workers and IRS.  Various software programs can help with parts of the process, including QuickBooks, Sage, Xero and TurboTax.
  • Use a 1099-MISC filing service.  If the thought of navigating all the forms on your own is too complex for you, consider paying for a filing service. For instance, Intuit has a 1099 filing service you can use.  Greatland also offers a 1099 filing service.
  • Have your CPA or tax preparer handle the 1099 forms for you.  They will fill out the 1099s for you to mail to workers.  They also do the filings with the IRS and state taxing authorities on your behalf.  For those who use a CPA or tax preparer, this is probably your best option.  At Small Business Trends, this is the option we use.

What if there’s an error in a 1099 form?

A payer who later discovers an error should re-issue a corrected 1099 form to that payee, and correct the filing with the IRS.

And if you are a payee, be sure to review every 1099 you receive against your own records.  This is for a couple of reasons:

  • The payer may have made a mistake, such as the wrong amount.  If so, contact the payer and ask to have the 1099-MISC form corrected and reissued.
  • Your company could be a victim of identity fraud.  One year here at Small Business Trends, we received a 1099 form for affiliate income we supposedly earned from the eBay Partners Network.  However, we’ve never been a member of that network and received zero income from it.  Someone perpetrated a fraud against eBay by using our name and address as the payee (luckily they didn’t know our correct TIN).  We sent a certified letter to eBay, and also attached an explanation to our tax return.

In the event of an error, the IRS instructions to recipients say, “If this form is incorrect or has been issued in error, contact the payer. If you cannot get this form corrected, attach an explanation to your tax return and report your income correctly.”

tax forms - 1099 MISC for independent workers

 

Is there a penalty for NOT issuing a 1099 MISC form?

Yes.  For this purpose, we went to the Turbo Tax website. It has a concise statement about penalties, noting that the penalty “varies from $30 to $100 per form ($500,000 maximum per year), depending on how long past the deadline the company issues the form. If a company intentionally disregards the requirement to provide a correct payee statement, it is subject to a minimum penalty of $250 per statement, with no maximum.”

In fact, the IRS requires you to affirmatively state under penalty of law, whether you have met the 1099 filing requirement.  Most small businesses complete a Schedule C as part their own tax returns.  Schedule C requires you as the payer to check the boxes on Lines I and J, stating:

  • Whether you made “any payments in 2014 that would require you to file Form(s) 1099″; and
  • If you checked the box for Yes, then “did you or will you file the required Forms 1099″?

Tip: don’t ignore 1099 filings.  Get on it – now!

What if I received miscellaneous income during the year and the payer never sends me a 1099 form?

If you performed work as an independent contractor and you earned at least $600 from a payer, that payer is required to send you a 1099-MISC form.  But if you received less than $600 from that payer — say you received $350 — don’t expect to receive a 1099 form.

Another exception: if you received payments via electronic means such as a credit card or PayPal, the payer is not required to send you a 1099-MISC.

However, let’s say you earned more than $600 for the year.  You received the payments via check, and not electronically. Still, the payer fails to send out 1099 forms.  Or let’s say you moved and forgot to tell the payer, and so you don’t receive the 1099.  In such situations, contact the payer and ask them to quickly mail the form or a duplicate copy out to you.

And remember, you are not excused from reporting your income, just because you never received a 1099 form (or because your income falls under the $600 threshold). Don’t rely on receiving 1099s for tracking and reporting your income.

Always track income independently, and reconcile your bank records.  And report all income.

If I am an author, what is the amount for a 1099 for book royalties?

There is a special dollar threshold for book royalties: $10.

Authors should not be surprised if they receive 1099s for very small amounts — well under $600.

Example:  let’s say you published a book on Amazon Kindle, and sold a handful of books during the year. In that case, you may receive a 1099 from Amazon for amounts such as $12 or $25 or other small amounts.

Where can I get the 1099-MISC forms?

The IRS’s 1099-MISC information center is here  

Order tax forms from the IRS here.  Or, another intriguing place is FormSwift, which offers an online fill-in-the-blank 1099 MISC.

The IRS’s free electronic filing system for 1099s is here.

Final Pointers: always consult your tax advisor and IRS 1099 instructions!

Disclaimer:  The information in this article is for general educational purposes, not tax advice.  While we strive to be accurate, we can speak in generalities only here.  The tax code has just gotten too complex to cover this topic in 2,000 words.

There are many many exceptions to the rules, and individual facts can make a difference.  Always read the IRS instructions for the 1099 form carefully.  And consult your own tax advisor for advice specific to your situation.

Image credits:  IRS building, tax form via Shutterstock; 1099 sample, penalty (remixed) via IRS.

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Anita Campbell - CEO


Anita Campbell Anita Campbell is the Founder and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses, and also serves as CEO of TweakYourBiz.com.

57 Reactions

  1. Great post for SMBs using independent contractors. These are many questions I’ve had to answer myself over the years and as with any tax questions, people need all the help they can get.

    PS The lowest cost service I’ve found is efileforbusiness.com

  2. It is important for everyone to really make sure they submit needed paper works especially for taxes. And it is a good idea to start early to avoid rushing at the last minute and risking errors on your papers or payments.

  3. I guess online workers who live in another country are still exempted. Wouldn’t this encourage people to hire more people from other countries to do a particular job?

  4. The article shows the 2014 1099-MISC form which is not the form you need. In January of 2014, you use the tax year 2013 form.

    • Hi Erich,

      Small businesses who want to do this on their own have to order the correct year’s form from the IRS.

      I originally displayed the 2014 sample as an image, because that is all that is available on the IRS website currently. Bizarrely, if you go to the 1099 information center page on the IRS website, and click on the second link under “Current Products” it takes you to the 2014 Instructions — not 2013 (don’t ask me why!):
      http://www.irs.gov/uac/Form-1099-MISC,-Miscellaneous-Income-

      However, I subsequently found a copy of the 2013 instructions with the 2013 sample on a different website, and updated the above article to show the 2013 sample image.

      Anita (edited)

  5. Is my obligation to issue a 1099-MISC impacted by Section 6050W? For example, if all my payments to a contractor were made through PayPal and PayPal is issuing a 1099-K to that contractor, do I also have to issue a separate 1099-MISC?

    • Hi Paul,

      The 1099-K, which was enacted in 2011, I believe, has caused a lot of confusion. There is the possibility that recipients may now get two different types of 1099s with overlapping/duplicate income reported.

      Technically speaking as the payer you should not report on a 1099-MISC form any amounts that would be reported on a 1099-K instead. This is what the instructions say:

      Form 1099-K. Payments made with a credit card or payment card and certain other types of payments, including third party network transactions, must be reported on Form 1099-K by the payment settlement entity under section 6050W and are not subject to reporting on Form 1099-MISC. See the separate Instructions for Form 1099-K.

      However, as TurboTax notes, many payers are issuing the 1099-MISC form anyway.

      – Anita

      • I understood that the payment processor (e.g. PayPal) only needs to issue a 1099-K if total payments processed for an individual customer were over $20,000 and the number of transactions exceeded 200. How is an individual payer expected to know whether a payee has reached those thresholds?

        Also, after a little research I found the following IRS statement which appears to be in conflict with your quote above:

        “If you are an independent contractor, the trade or business should continue to report payments made to you on Form 1099-MISC as they have done in the past. No Form 1099-K should be issued.” http://ow.ly/sqXgr

      • HI Paul,

        The whole 1099-K has just been a poorly thought-out requirement from the beginning, because of duplicate reporting.

        We are going to do a separate article on the 1099-K / 1099-MISC and I will update this once I have a chance to dig in further.

        – Anita

  6. Thanks for this! I have contractors throughout the year and ran into one that was here in the US on a Vis, your article was a help. I used the IRS system but had problems getting copies that my recipient lost. This year I used Wagefiling.com, it was $3 but I was able to save copies as a PDF. And the funny thing was the IRS recommended them to do it? Will 1099 reporting change with the new healthcare law?

    Thanks again

  7. I paid a contractor via Wellsfargo SurePay (third party that transfers funds from my bank to theirs). Would that be considered a third party? IF so, it states that third parties have to report over 20,000, but we have to report over $600. So how does that work then?

    Also, I hired someone remotely (out of state), I can send them a 1099, but do I have to report anything to my state?

    Thank you.

  8. Hello, I made $20,000 in 2013 being someone’s personal assistant. I will file using a 1099 misc and I have 3 children all under 10 years old. Will I receive a refund? Or will I owe?

  9. William Del Grosso

    I’m surprised that I can’t seem to find an answer to this question anywhere online: Can you email your contractors their 1099’s as opposed to mailing them? (I have 60, so it would be great to save on the postage, ink, etc.) Anyone know? Thanks!

    • William, did you find an answer to your question of (can you email out 1099 to contractors)?
      I’m trying to find that answer too.
      Thanks,
      Scott

  10. This is a great article. The 1099-MISC is very important. While the IRS may be a little forgiving for honest mistakes (from my own experience) they may not excuse penalties and fines. As with most things in business; if it is confusing and not part of your core business, hire a professional!

  11. My boyfriend is self employed and he received a 1099misc. What does he do if out of that money he paid more people he had working with him?

  12. Hi, I just started a work from home job , filled out the I9 how do i pay taxes and when do I get a 1099 and how much tax will I have to pay each time i am paid or the end of year ,I’m new at this , Thank you

  13. I received a large settlement from my former employer. The settlement was for pain and suffering – hostile work environment. Is there specific category for this type of income so as not to pay taxes on it. If so what is the category or code to be used on the 1099? Thank you

  14. My husband just received his 2013 1099-MISC and the contractor he worked for, reported the wrong income, (over $2600) and he received it 3/10/14. The contractor and my husband are not on speaking terms and this guy is know for weaseling himself out of situations. Any ideas on how we can handle this?

  15. Does the original carbon copy forms of the 1099 have to be sent to the employer? My issue is they are not conducive to a laser printer and I had a number of 1099 forms returned to me today, the toner and the envelope window reacted and the print is completely gone.
    The only way I can think to get these forms out is to print on regular copy paper. But is that allowed?

  16. William Johnston

    I had a roofer replace the shingles on a rental residence, and a new furnace installed. Both over $600. am I required to issue 1099misc to these to companies?

  17. Hi, do I need to provide a 1099 to a nanny for childcare services? This was not related to any business or trade.

  18. Is there a difference between payment to an independent contractor and reimbursement for expenses to an independent contractor? It seems to me like one would be income (and subject to tax) and the other not. Is this accurate?

  19. I’m paying my sister to help me with my job here and there. If I am an employee, but I hire and pay a contractor to help me with my job, and pay them with a 1099 misc. Do I deduct this pay from my gross income I make as an employee?

    thank you for your help.
    troy

  20. Great article. Thanks for the info, you made it easy to understand. BTW, if anyone needs to fill out a IRS form 1099-K, I found a blank form here http://goo.gl/Ty1MVJ. This site also has some tutorials on how to fill it out and a few related fillable tax forms.

  21. Does a foreign corporation not having a trade or business in the US but employing an independent contractor in the US have to send that independent contractor a 1099-MISC?
    Thank you.

    • If the foreign corporation is employing a US contractor than that corporation does have business in the US and is required to file a 1099

      • I have a very similar situation. I have a LLC and I am providing Sales Consultant to a foreign company. They deposit the money in the LLC bank account every month. I understand I need is required to file a 1099 form but what would be the PAYER Federal Identification Number for this international company ??
        Thanks.

  22. Christina Martinez

    Are hand written 1099-misc accepted by the IRS? As I can not find a template or software for the Mac to print 1099-misc.

    • To my knowledge completing the 1099s in handwriting is fine. Just print legibly using black ink.

      Also, note that the copies of the 1099s that you send to IRS must use a version of the form that is printed in red, along with a 1096 cover form also printed in red. Now, those forms themselves are printed in red. You do not have to complete those in red ink, however. You can use black ink. Just make sure you start with the right (red) forms. Or file the information with the IRS electronically using their system.

      The IRS is rather particular about using the proper forms.

      Hope that helps.

  23. I worked for cash the last 2 months of 2014 and didn’t make a lot of money. Will I receive a 1099 and if not, am I required to claim that little bit that I did earn?

    • If you made $600 or more in cash, the company that paid you is supposed to send you a 1099 MISC. Whether that company will or not, I can’t say.

      However, even if you do not get a 1099 MISC, you are required to report all income from all sources, on your tax return.

      Keep in mind, if you made very little last year, chances are that cash amount won’t cause you to pay much (or maybe not any) tax on it anyway. For people in lower income brackets, that’s often the case. You’d have to run the numbers on your return, to see.

  24. Our company pays 3 consultants in Greece and 1 in Canada for services provided online. It looks like we don’t have to file 1099 Misc Income forms for these consultants since they all live in other countries and do not operate any business service in the U.S.

    Could you verify this information for me? Thanks. Cindy McCabe

    • Hi Cynthia, while we can’t give legal or tax advice, for informational purposes, the answer is “you would not have to send them 1099 MISC forms.” Just verify that indeed they have no other connection with the United States such as indicated in the article.

  25. my husband is an independent contractor, he work as an uber driver using our own car, uber pay him by commission like out of 100% uber company pay us 70%… they make the payment directly to our bank…
    then last Feb, we received 1099k form stating that we earned that 100%…but when we add up the money that they paid us, it is only 70%…do i need to declare the whole 100%(gross amount) because we are confuse please help , thank you

    • Maria, Your husband should complete a Schedule C (or possibly Schedule C-EZ if he had less than $5,000 in business expenses). This is an IRS form for “Profit of Loss from Business”.

      On that Schedule C, indicate the 100% amount from the 1099-K in your income on Line 1. Then deduct on Schedule C the 30% that Uber took as a commission, as a business expense. I believe you indicate that expense as a commission on Line 10. You will arrive at the same end, your 70% net.

      Check for more information about Schedule C here.

  26. Hello.
    Can anyone advise?
    We have an attorney that we’ve known for years in another state.

    We needed his services a few times last year and he ignores our request to fill out a W-9 form so that we can file our 1099 MISC.
    Are we supposed to include him on the 1099, because now he’s been sent numerous emails and messages on his phone?
    I don’t understand this because he’s supposedly reputable and people know him.
    Thank you.

  27. If I live in California and pay some one in Arizona for rental property management fees do I need to file a 1099 in California as well?
    Thanks for helping.

  28. Hi, I have a few questions.
    1. Do I fill out a 1099-misc form for myself, since I paid myself?
    2. Do I file the 1099-misc form that I wrote for 5 of my employees with my personal taxes or separate.

    Any other help would be great, this is my first year working through all of this and the tax lingo is new to me.

    I have 5 employees who make less than $1,000 a year and I pay myself as well. I have given them their copies of the forms, I am just not sure what to do with my copies and my pay.

    Thanks for your help!

    • Hi Sondra,

      That depends on whether your business is incorporated, and whether you are an employee of the corporation. If your business is incorporated, the business should issue a W-2 to you, as an employee.

      If the people who work for you or your corporation are actually employees (not independent contractors), then you would issue a W-2 form to them, also. Only independent contractors get a 1099 MISC form. The IRS makes a distinction between employees and independent contractors.

      If your business is unincorporated (such as a sole proprietorship or a single-owner LLC) then you do not issue a 1099 MISC to yourself. In that case, you’re the business owner and your income is treated as a “pass through” (which means, the income is really yours to begin with). Since the income is already yours there’s no need to issue a 1099 to yourself.

      Check with your tax advisor to be certain, but that’s how I’d suggest treating it. Hope this helps!

      – Anita

  29. We have a non-profit organization that pays a small salary to its officers each month. We file a 990-EZ for the organization. Are we required to send a 1099-misc to each officer for their salaries? If not is there a document we should be sending/filing out?

  30. I’m a sole proprietorship and was wondering if the 1099’s I issue affect my taxable income? For example if I make $200,00 a year but I issue a 1099 for $80,000, is my taxable income only $120,000?

    Also, which tax bracket would this put me in, the $200,000 bracket or $120,000 bracket?

    Thanks for your help!

  31. I have overlap on my 1099 MISC and the 1099K and have for the past few years. Simply stated: A customer pays me with a credit card and sends me a 1099MISC. Now I recieve a 1099K from my bank (credit card company) with $50,000 + on it and am expected to pay taxes on this also. I was audited in 2013 for this and had to pay a considerable sum. Is there any way to properly report this?

  32. If I’m expecting a 1099 from an employer and don’t receive one because they’re behind on their taxes, where should I report the income? As additional income (even though it’s 13,000) or should I report it as a 1099-misc even though they have not yet filed that form?

    • Hi Alex, do you file a Schedule C for your business? If you had income from an unincorporated business, normally you would file Schedule C to detail your business income and expenses.

      On Schedule C, here’s how you do it. Just add up all the income you received last year in your business from ALL sources — whether you got 1099s from the payor or not. Check your accounting records and your bank account records to make sure you include the total you received for 2014.

      Then the total number you got after adding up all of your business income goes on Line 1, of Schedule C. Then Schedule C gets attached to your 1040or 1040-A tax return.

      See Form Schedule C, Line 1. See also the Instructions for Schedule C, starting on Page C-5 for more details about what to include on Line 1 when reporting your income.

      Also, if you had less than $5,000 in business expenses and your business is pretty straight forward, there’s a scaled-down version of Schedule C you might be able to use instead. It’s called Schedule C-EZ.

      Good luck with it.

      – Anita

      PS, the above is for a typical small business — either a sole proprietor or an LLC. If your business is a corporation or partnership, or you have some other complex structure or accounting method, you really should be seeing a tax preparer to help you. Tax preparation gets complicated.

    • Hi Alex, Let me add another answer. Re-reading your question, it seems that you might have gotten some side income as an independent contractor, and don’t necessarily have a business. If you don’t have a business, and you’re reporting “side income” like that, I think the IRS says to report it on Line 21 on your 1040, under other income. See this explanation on the IRS website.

      If I am understanding you correctly….

      – Anita

  33. Hello. I have an interview for an office clerical position. I was told this is a 1099 position. I am unaccustomed to this for my line of work. How will this impact my financial future? I am concerned about the usual IRS deductions, etc. Thank you.

  34. Hi Anita,

    I am a visitor in USA. My visa will expire by end May, 15. Do i need Social Security or work permit to work under 1099.

    Thanks,
    Faisal

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