How Does the IRS 1099 Form Work?

Quick Tips on How to Handle a 1099-MISC Tax Form

person filling out irs 1099 tax form
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Being self-employed has many advantages, including getting paid in full without employer deductions. As an independent contractor, freelancer or self-employed individual, getting a check for the gross amount owed can be pretty exciting. Nevertheless, Uncle Sam still wants his cut. This is where the 1099-MISC tax form comes in. Whether you just received your first 1099 or need to send someone a 1099, here is a simple breakdown of how it all works.

What Is a 1099-MISC Tax Form?

The 1099-MISC Form is similar to the W-2, in that it reports income to the worker and the IRS. The difference is that the 1099-MISC is used by businesses who pay contractors or freelancers $600 or more during a calendar year. While employers deduct taxes from your income and report as part of your W-2, clients who hire you as a contractor don't make any deductions, and report what they paid to you on the 1099-MISC.

What to Do If You Receive a 1099-MISC Form

Legally, all individuals or companies who hire an independent contractor or freelancer are required to send a 1099 Form by January 31st of the tax-filing year. If you did freelance or contract work for which you were paid $600 or more by a business in a year, you should expect to have at 1099-MISC by the end of January the following year. For example, if you earned $600 from Business A in 2016, you should receive a 1099-MISC by January 2017.

Note, that if you earned less than $600, the company is not required to send you a 1099-MISC, but you are still required to report the income you earned. 

There are two reasons you might not receive a 1099-MISC:

1) If your total payment was less than $600 total, the payee doesn’t have to send a 1099 Form.

 

2) If your payment was $600 or more, your payee may have just forgotten, in which case, you should contact the company. If you hadn't already filled out the W-9 Form (similar to the W-4 for employees), which provides your social security number or tax-ID number (EIN) you should send one when you make the request for the 1099.

If you work for several clients/businesses, earning over $600 from each, you'll receive a 1099-MISC from each. If you worked for several clients, but didn't earn $600 from each, you may not receive a 1099-MISC, but you'd still be responsible for including income you earned from them on your taxes taxes on Schedule C.

What to Do If You Need to Provide a 1099-MISC Form

If you've outsourced work in your home business to other freelancers or contractors, you need to ask them to fill out a W-9. If you paid them more than $600, you need to prepare and send them a 1099-MISC at the end of January following the year they did the work. You also need to send a copy to the IRS.  The IRS has specific instructions about sending the 1099-MISC in, including what paper to use. Visit the IRS online for more information. Also, note that attorney fees of $600 or more may be handled differently.

Check out the IRS website to get clarification.

For example, if you've hired a virtual assistant, a web designer, and social media manager, and paid them all over $600 over the course of a calendar year, you'd need to send them each a 1099-MISC.

While it seems like a lot of work and hassle, money you pay to contractors can be a tax deduction.

If you've received or sent a 1099 with inaccurate information, be sure to void and resubmitted an updated 1099.

Get up to date information, instructions and form about the 1099 at the IRS website.