What Is a 1099 Form and Who Gets Them?

Nov 10, 2020

Wondering whom you need to supply with a 1099 for 2020?

Confused about the difference between a Form W-2 and a Form 1099?

There are a few important differences between the two forms, the main one being an employee gets a Form W-2 and an independent contractor making more than $600 a year gets a Form 1099. If you are an independent contractor, it is not your job to file the 1099. But if you do not receive a copy of the 1099 from your client, you should follow up with them. Independent contractors will need to report all their income on Schedule C, even if it falls under the $600 range, and, they wouldn’t show up on any 1099s.  

A 1099 is an “information filing form”, used to report non-salary income to the IRS for federal tax purposes. If your company paid an independent contractor more than $600 in the 2020 financial year, you would need to complete a 1099-NEC (please note this is a new form for 2020).

If you are a small business owner, you will most often be dealing with Form 1099-NEC, so we will focus on that one.  From 1099-NEC is the version of Form 1099 you use to tell the Internal Revenue Service whenever you’ve paid an independent contractor $600 or more in fees, compensation, real estate rent, prizes, awards, or any other kind of taxable income. (That is $600 or more over the course of the entire year.) The IRS uses this information to independently verify income and therefore federal income tax levels.

An independent contractor is anyone hired on a contract basis to complete a particular project or assignment.  If a freelancer is hired through a third-party service, you may not be required to submit a 1099 for them. TIP: For instance, if you hire a freelancer through Upwork, Upwork is actually the one doing the hiring, so you don’t need to submit a 1099.

Who needs to fill out a 1099 form?

If your business hired the contractor and paid them more than $600 in a year, you are responsible for issuing them a 1099-NEC. In other words, the payer fills out the 1099.

The $600 cut-off

If you paid an independent contractor less than $600 over the course of the financial year, you do not need to submit Form 1099 for them.

If you did pay a contractor more than $600 for services, rent, or any other type of miscellaneous income payment, you need to file a 1099. But there are exceptions to this rule.

Do not file 1099s for corporations

It is rare, but sometimes an independent contractor will be registered as a C corporation or S corporation. You do not need to file Form 1099 for a contractor registered as a corporation.  You can see whether a contractor is incorporated based on the information on their Form W-9. Request one from any contractor as soon as you hire them. Also keep in mind that corporation names are typically appended with “, inc.”

Do partnerships get a 1099?

If you paid a partnership more than $600 during the tax year, then you must issue them a 1099.

How do I issue 1099s?

1. Gather the required information

2. Submit Copy A to the IRS

3. Submit copy B to the independent contractor

4. Submit form 1096

5. Check if you need to submit 1099 forms with your state

Is all this confusing, overwhelming, too much for you to do on your own? 

Well, Buying Time can help with your filings.  Just email accounting@buyingtimellc.com and we can get you started.

** REMEMBER the filing deadline for 2020 1099s is February 1, 2021 **