Companies of all sizes who pay contractors and vendors are required to file Form 1099, which reports the contractors’ income to the Internal Revenue Service (IRS). The process isn’t necessarily fun but it has to be done right and on time. Or you may get stuck with a big fine from the IRS.
All things considered, filing one 1099 is a lot easier and cheaper than filing payroll taxes and W2s. Still, 1099 forms are complicated, especially if you’re juggling many different nonemployee payments. There are several forms to keep track of (17 to be exact), each with different reporting requirements. And questions are sure to come up. For example, which form goes to your freelancer? Which form do you use to report credit card payments? Can you send vendor forms digitally? What should you do when EIN and vendor names don’t match up?
In this guide, you’ll learn more about 1099 and what you can do throughout the year to prepare.
IRS Form 1099 reports nonemployee income earned by a business or an individual during the year. The payer is responsible for issuing the form to vendors and filing with the IRS at the end of the year.
If your business paid a vendor more than $600 during the year and they fall into the categories below, you will need to file a 1099 for them. Aim to calculate the payment total in January after all payments have been made for the year.
Though the majority of nonemployees and vendors should receive a 1099, there are a few exceptions.
There are 17 different kinds of 1099 forms. The ones most relevant to startups are 1099-NEC and 1099-MISC, which we cover below. Some startups may also need to report payments from third parties like PayPal, which is a more complex process and often requires guidance from professionals.
1099-NEC is used to report nonemployee compensation to independent contractors, freelancers, sole proprietors, and self-employed individuals. The majority of vendors paid more than $600 during the year will receive this form. Examples of eligible payments include contract payments, as well as fees and service charges paid to nonemployees.
1099 MISC is used to report miscellaneous payments that aren’t included on1099-NEC. Payments must be at least $10 for royalties, and at least $600 for rent, prizes and awards, medical and healthcare payments, and settlement payments to an attorney.
The 1099 process can be tedious, but getting organized early and staying on track throughout the year will put you in better shape for tax season. We caught up with our 1099 team at Furey for tips to help your business prepare for 1099s:
Many payroll providers like Gusto, Justworks, and Rippling file 1099s for contractors that were paid through their platform. But they don’t include outside payments, like those made via wire transfer or payment processors. That’s why it’s important to do your own calculations to be sure you’re reporting the right numbers.
Clean and accurate records are crucial when it comes to a stress-free tax season. At Furey, our robust accounting and AP processes get your business 1099-ready, whether you’re filing on your own or utilizing our 1099 service (available to current clients at this time). We help your business:
Key dates are below but it’s best to check IRS.gov for the most up-to-date information and 1099 form instructions.
This article is for informational purposes only, and is not intended to provide tax, legal, or accounting advice. You should consult your own tax, legal, or accounting advisors before engaging in any transaction.