What’s up with the Form 1099-Misc, anyway?
As a business owner, you may attend seminars on how to move your product, watch videos on leadership, or listen to audio books on the Zen of being a Mom & Pop shop—but do you know where to find the resources for when and how to file Form 1099-Misc?
Often business owners think they know all there is to know about the 1099 Misc, and sum it up with “I only have to file one if a worker earns over $600.” While that is true, 1099s also need to be issued when you’re paying attorneys over $600, and paying rents to property owners for business space. You can read all about these other items in the 1099-Misc instructions on IRS.gov at your leisure, but for now let’s take a look at the form as far as your workers are concerned.
Employee or independent contractor? If you are telling a worker when and where to show up for work, and how to do their job, that worker may be an employee, in which case you should be issuing a W-2 and taking out withholding, social security and Medicare. Once again the IRS comes to the rescue with some information to help.
“Well, this guy said he wants to be paid under the table....” Every one of us is required to pay taxes on our income. Before you hire anyone, make it understood that you will be taking deductions on your Schedule C for wages you have paid, and will be issuing him or her a Form 1099-Misc. Employers are required to issue 1099-Misc forms by the end of January (February 1st in 2016), and can be penalized for failing to do so.
Don't automatically assume that you are doing someone a disservice by issuing a 1099 form. Independent contractors have to file a Schedule C, so they will need proof of their income. Often these workers have large expenses to write off, so having a 1099 rather than a W-2 can be beneficial for them. Also workers who have earned income and do not file their taxes may be passing up a substantial earned income credit.
The other deadline. Not only will you have to send 1099s to your workers, but you must electronically file them with the IRS by March 31st in 2016. Don't forget to find out what your state regulations are.
Form W-9 to the rescue. The IRS requires Form W-9 to be filled out and kept on file whenever you hire an independent contractor. Filling out 1099s will be a snap at tax time, since all the information about each worker will be on the W-9.
If you have a worker who makes less than $600, even though you’re not required to issue a 1099-Misc, you’ll still want to take the wages deduction on your Schedule C. Be sure to obtain W-9s from anyone you pay, so that you will have supporting documentation should the IRS audit you.
We aren’t tax professionals or accountants so for more information or specific questions, you should consult your accountant or tax preparer, and the IRS website.