Every year, business owners have the task of reporting wages for work preformed. Usually the person receiving a weekly paycheck is considered an employee and receives a W-2 tax form, but when it comes to your attorney, the person who designed your website, or cleans your offices, the rules are different.
The IRS’ Form 1099-MISC is a tax form used to report an annual summary of all non-employee compensation a business or trade has paid out, also known as “miscellaneous income”. This form covers a wide range of compensation types. According to the IRS, 1099-MISC forms should report payments to individuals made during the fiscal year which include:
- $10 or more in royalties or broker payments from dividends or tax-exempt interest
- $600 or more in rent, services, prizes, awards or other payments
- $600 or more in medical and health care payments, crop insurance proceeds, or notional principal contracts paid from an individual, partnership or estate
- $600 or more in cash payments for fish or other aquatic life made to someone in the fishing trade, or any amount made from the proceeds of a fishing boat sale, or
- $600 or more paid to an attorney
While there are a lot of different types of compensation a 1099-MISC form is used to report, by far the most common usage of the 1099-MISC form is by small businesses reporting compensation paid to independent contractors.
Who receives a 1099-MISC form?
Now that we’ve looked at what a 1099-MISC is used for, let’s take a closer look at who exactly receives 1099-MISC recipient copies each January.
The simplest way to think of who needs to receive 1099-MISC forms is this: if your business has paid $600 or more to a non-employee, or $10 or more in royalties, during the year, you must send that person a 1099-MISC showing the total amount you paid for that year. The 1099-MISC must be submitted to the payee by January 31 of the following year, and it must also be submitted to the Internal Revenue Service (IRS) by the end of February.
A non-employee is classified as anyone who is not on your payroll. For example, if you hire a lawncare company, and they cut your lawn at the office, using their equipment and time, they are not an employee and should receive a 1099-MISC form. Other common examples include website designers and developers, consultants, contract workers, seasonal workers (such as for construction or agriculture), attorneys and other professional services.
Some small businesses, especially those that operate seasonally, rely heavily on independent contractors, and other small businesses hire just one or two each year for a few select services. Whichever category you fall under, if you’re operating a business, chances are you’ll need to report 1099-MISC compensation this year.
What are the different pages included in filing a 1099-MISC?
The 1099-MISC is a multi-part form. When you’re reporting 1099-MISC income, you need several different types of forms, which are each sent to a different party.
• Copy A is submitted to the SSA by the payer
• Copy 1 is submitted to the state tax department by the payer
• Copy B is sent to the recipient (the payee)
• Copy 2 is given to the recipient for filing with the state tax return.
• Copy C is kept by the payer.
Typically, when filing with traditional paper tax forms, you must fill out each of these copies separately. When you use WageFiling to submit a 1099-MISC online, the need for separate forms is eliminated. Each of these separate copies are automatically created, using the info you input. Copies A and 1 are e-filed to the SSA and IRS, and copies B, 2 and C can either be printed out on regular paper, or saved as PDFs.
You can also use WageFiling’s IRS-approved ID protection to mask recipient SSN numbers, which then allows you to email recipient copies, rather than sending them via mail.
For help filing out a 1099-MISC, take a look at our detailed, step-by-step 1099-MISC instructions here.