1099 tax forms

Guide to Filing and Processing Your 1099 Tax Forms

Processing and filing 1099 tax forms are fairly easy. It is essential that this is done correctly, and in a timely manner.

1099 tax forms are to be distributed to both contracted employees and to the IRS each year.

Filing 1099 is a fairly cut and dry process that ensures contractors pay taxes on income which has not already been reported throughout the year by traditional employers.

When it comes to 1099 filing, there are responsibilities that fall on the employer and on the contractor.

It may be wise both entities use an accountant or tax preparer. Filing 1099 is somewhat more involved than filing a standard W2.

Employer Responsibilities

  • Calculate the amount of income each contractor has made throughout the year
  • Issue a 1099 form to the IRS on any contractor who has been paid over $600
  • Issue a 1099 form to the contractors themselves who have been paid over $600

Contractor Responsibilities

  • Receive 1099 forms from all contract basis jobs totaling $600 or more
  • Check totals against your own records
  • File the 1099 tax forms along with taxes
  • Use deductions to offset tax owed if possible

What is 1099?

1099 filing Involves submitting a form with several pages of documents to the IRS. 1099 forms are known as “information returns“.

These forms are there to report the money you have made throughout the year other than a standard salary from a sole, traditional employer.

Some people may have 1099 forms and W2 if they work a standard job and do contract work on the side. Other people may have only 1099 filings if they work in only in contractor positions.

Those employers who have hired contractors are required to provide the 1099 form. It reports how much income the contractor made throughout the year to the federal government.

Most companies issuing 1099 forms have accountants prepare them to ensure accuracy and proper record-keeping.

It is the employer’s responsibility to make sure the IRS and contractors have received their 1099 forms each year.

What is the Purpose of a 1099 Tax Form?

1099 filings serve the purpose of making sure the Federal Government has an accurate reporting of one’s income for the purposes of income taxes.

Contractors are required to pay taxes on money they have made throughout the year.

The form allows the government and the individual to track how much money was made from doing contractor labor and to ensure the proper amount of tax was paid on that income.

Who Receives a 1099 Tax Forms?

Employers are required to send 1099 forms to both their contractors (those who have worked for a company but were not categorized as standard employees, receiving W2s) and to the IRS.

This allows both the contractor and the government to see how much income was made working for the company. Typically, the contractor would have also kept up with this on his own.

The contractor and the government receive 1099 forms from every employer for which the contractor worked throughout the year. For some contractors, this may mean multiple 1099 forms.

It depends on the line of business and the extent of the work of the contractor. There is not a limit to the number of 1099 forms a contractor may receive and need to file.

Basically, the number of 1099 forms a contractor receives should be equal to the number of employers who paid him $600 or more throughout the year.

If a contractor worked for four different companies is 2019, and earned at least $600 from each, he would receive four 1099 forms by January 31, 2020. If he did not receive four 1099 forms, he would need to inquire as to why.

When Should 1099 Forms Be Sent?

1099 forms should be sent to the IRS and to individual contractors by January 31 of the year following the tax period.

For instance, 1099 forms for the year 2019 should arrive in the hands of contractors and the government by January 31, 2020.

This provides the individual with plenty of time to use the 1099 form in filing his own individual income taxes.

The contractors filing 1099s should file and pay any taxes owed no later than April 15 or the date the government has designated to be the day income tax returns are due.

The timeline and payment deadlines are the same as for people filing W2s instead of 1099s.

How Does 1099 Filing Work?

From an employer standpoint, to submit 1099 filings, the total amount paid to each contractor throughout the year must be calculated.

Of Course, most business will have software which has continuously kept up with these figures throughout the year. These totals should be entered on 1099 forms for all contractors.

The employer must submit a 1099 form for anyone to whom they have paid $600 or more throughout the year, and for whom they did not withhold taxes.

Many companies use accountants to assist in the issuing of their 1099 forms to help ensure accuracy in accounting.

From a contractor standpoint, you must report to the government 1099 forms totaling $400 or more throughout the year.

You will submit these 1099 forms along with your taxes.

Taxes will be paid on the money you have made. You can also offset that with deductions on items purchased in the line of work.

Deductions

Deductions may be claimed on expenses you may have incurred in the course of your work as a contractor.

For example, if you were hired as a contractor to do construction, you may deduct money you spent on tools or hiring subcontractors to work with you, as long as the purchases were for the purpose of completing the job for which you have received the 1099 form.

Items that have nothing to do with the work you have done may not be deducted. Receipts and thorough records should be kept throughout the year so that you have supporting evidence for any deductions you plan to take when you are filing your income taxes.

Filling out the paperwork to take all the deductions you deem appropriate can be confusing and time-consuming.

There are companies who you can hire to prepare your taxes and deductions.

What is Expected of a Business Issuing 1099 Forms?

Once you have calculated the amount paid to each contractor and sent the 1099 form to the contractor and to the IRS, you have fulfilled your duty.

Calculations should be accurate, but it is the contractors’ job to then proceed with 1099 filing with the government.

You should keep a copy of the 1099 forms issued to each contractor in your records.

This way you have proof that you issued such forms in the case there is an audit or the contractor does not file 1099 as he is supposed to with the IRS. This is a measure of self-protection on the part of the employer. Records should be kept for at least seven years.

Wrapping It Up

1099 forms are necessary to keep correct accounts on income taxes being paid to the federal and state governments.

Contractors do not have taxes withheld throughout the year, so it is necessary for them to pay taxes on the money they have made during the tax season of the following year.

Companies who have hired contractors for 2019 should issue 1099 forms by January 31, 2020, provided they were paid at least $600 during 2019.

These companies may use accountants to help ensure their calculations are correct and the numbers being issued on the 1099 forms match the actual amount of income each contractor made from their company in 2019.

For a company to send out inaccurate 1099 forms would mean that its contractors would pay an inaccurate amount of income tax for the year of 2019. 1099 filing should result in checks and balances to help make sure everyone has paid the correct amount of taxes.

Individual contractors should keep records throughout the year for how much money they have been paid by each employer they have done work for. Their totals should match the totals on the 1099 forms as they begin to receive them in January.

Once an individual has received all of the 1099s, they should file them along with their other tax documents for the year 2019.