Answers To Some Of The Most Common 1099 Questions

Answers To Some Of The Most Common 1099 Questions

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If you work on your own and you’re not an employee, or if you hire people to perform services that help your business, 1099 is the most important form you’ll need for income tax filing and payment purposes. Whether you handle tax Form 1099s yourself or hire and use a professional to issue Form 1099s and report them to the Internal Revenue Service, you should familiarize yourself with the right procedures and tools in place!    

Answers To Your 1099 Questions

The 1099 form covers payments you receive that may potentially be taxable in a calendar year. It is a series of information filing form that the IRS refers to as "information returns.". Here is a list of the most common questions from 1099 workers about filing taxes for their miscellaneous income.

Why is a 1099 so important in the U.S. tax system?

This information return program is a kind of two-way verification system that can be the most powerful weapon to prevent taxpayers from underreporting their income. IRS computerized program automatically checks the amounts on the information returns the agency received against the income tax returns reported. If you’ve reported less income than shown in the information returns, you can expect a letter demanding payment of additional taxes, interest, and penalties.

What types of 1099 Forms are there?

  • Independent Contractor Income (1099-NEC)
  • Interest and Dividend Income (1099-INT and 1099-DIV)
  • Withdrawals from a retirement account (1099-R)
  • Government Payments (1099-G)
  • Debt Cancellations Income (1099-C)
  • Real Estate Transaction Income (1099-S)

Who needs to fill out a 1099 form and send to the IRS?

In general, if you hired a contractor or freelancer and paid them more than $600 in a year, you’re responsible for issuing them a 1099-NEC. In other words, the payer fills out the 1099.

How do you prepare a 1099?

The first thing you need to do to prepare a 1099 is that you make sure you have all the correct information on your contractors or vendors. Vendors should have already filled out Form W-9 and provided it to you when you engaged their services. In other words, having contractors fill out a W-9 should be one of the first administrative tasks you complete after hiring them. A Form W-9 includes their name, address, and social security number (SSN) or Employer Identification Number (EIN). The W-9 also includes their tax filing entity, so you can know if you need to issue a 1099 for those vendors.

Information you need before completing a 1099 is as follows:

  • contractor’s SSN or EIN
  • the total amount you paid them during the year
  • contractor’s legal name
  • contractor’s address

What is the due date for Form 1099?

The IRS requires you to report 1099 income to both the independent contractor and the IRS:

1099-NEC

  • February 1, 2021: The deadline to send 1099-NEC reporting to independent contractors and to the IRS (both paper and e-filing)

1099-MISC, 1099-A, 1099-C, 1099-DIV, 1099-INT, 1099-K, 1099-R, 1099-OID

  • February 1, 2021: The deadline to send 1099-NEC reporting to independent contractors
  • March 1, 2021: The deadline to send 1099 reporting to the IRS (Paper Filing)
  • March 31, 2021: The deadline to send 1099 reporting to the IRS (E-filing)

1099-B, 1099-S

  • February 16, 2021: The deadline to send 1099 reporting to independent contractors
  • March 1, 2021: The deadline to send 1099 reporting to the IRS (Paper Filing)
  • March 31, 2021: The deadline to send 1099 reporting to the IRS (E-filing)

As a self-employed individual, do I need to pay quarterly taxes? 

If you're self-employed or a freelancer who receive a Form 1099 or are paid directly from your clients or customers, then you may need to make estimated tax payments on a quarterly basis. Don't miss the quarterly tax payment due dates to avoid an IRS penalty. To see how much you should send, use this estimated quarterly tax calculator.

How do I file if I worked a full-time job (W-2) and freelanced on the side?

If you worked a full-time job as an employee, you will receive a form W-2 in the beginning of the year. Also, you will receive a from 1099 if you worked as a freelancer and were paid over $600. You will need to use those two forms, W-2 and 1099, to report that income on your tax return.

What taxes do I pay on 1099 income?

You pay both self-employment taxes and income taxes on your 1099 earned money. You can figure out how much you’ll owe by using this 1099 self-employment tax calculator.

How do I deduct business expenses from my 1099 income?

During the year, you need to track all your expenses as well as income. Then, when you file your tax return, you claim all your 1099 deduction expenses along with your income reported on your 1099 using a schedule C.    

Do you have to give a 1099 to a corporation?

If service providers are either a C corporation or S corporation, you don’t need to file Form 1099 to those corporation vendors. Form 1099 to those corporation vendors.  

DO you have to issue a 1099 to a contractor paid by credit card?

If you’re paying a contractor or freelancer with a credit card, you don’t need to give them a 1099. The independent contractor or freelancer will still receive a form 1099 from the credit card company, though.

I missed the 1099 filing deadline! How much in penalties do I pay?

Well, it’s not the end of the world if you missed the 1099 filing deadline, but you will have to pay the penalties for each late 1099 form as follows:

  • $50 if you file within 30 days
  • $100 if you file more than 30 days late, but before August 1
  • $260 if you file on or after August 1

I found a mistake on a 1099 form that has already been filed! What do I do?

This happens. It’s not unusual for business owners to make a mistake. Contractors sometimes fill out a form 1099 incorrectly. Perhaps your assistant puts the wrong dollar amount on the form.

Whatever the reason may be, the form must be amended promptly. Any error or omission related to your taxpayer identification number (TIN) can trigger an IRS audit.

It’s not too hard to amend a 1099. You just need to fill out a corrected one and include that copy as well as a new form 1096 when you mail them out. Specifically, you should put a checkmark in the “corrected” box on the top of form 1099. This will let the IRS know that the firm has been corrected.  Be sure that you don’t include a copy of the original. As long as you put a checkmark in the “corrected” box and include form 1096, the requested changes will be made.

What is the Form 1099-NEC?    

Beginning in 2020, business taxpayers receiving income payments of $600 or more for non-employee compensation will receive a Firm 1099-NEC by February 1, 2021. This replaces the non-employee compensation payment reporting on Form 1099-MISC for more than 30 years. All businesses now must issue and file a Form 1099-NEC for non-employee compensation if all of the following conditions are satisfied:

  • You made the payment to someone who is not your employee
  • You made the payment for services in the course of your trade or business, not products
  • You made the payment to an individual, partnership, or other unincorporated entity (payments made to a corporation including an LLC treated as a C or S corporation generally do not need to be reported except for payments to attorneys that are corporations)
  • The payments made to the payee were at least $600 or more for the year

If federal withholding exists on any non-employee compensation payments made to a recipient, you must prepare a Form 1099-NEC to report it even though payments were less than $600.

For the 2020 tax year, Form 1099-NEC is due to the IRS on Monday, February 1, 2021. Copies of Form 1099-NEC is due to recipient individuals or businesses by February 1, 2021 as well.

Am I required to file 1099s with states?

You’re required to file 1099 forms with some states. The following states do not require 1099 forms to be submitted:

  • Alaska
  • Florida
  • Illinois
  • Nevada
  • New Hampshire
  • New York
  • South Dakota
  • Tennessee
  • Texas
  • Washington
  • Wyoming

Check with your tax professional or on the www.irs.gov website to make sure you are compliant with any of your state’s 1099 filing requirements.

Do I need to file a 1099 for my rental property?

Self-managing rental property owners were once responsible to report the money they paid independent contractors for services on their own property. However, the reporting requirement rules didn’t last long, and by 2011 it was no longer necessary for private landlords to file Form 1099 to vendors for work related to their own rental property. Unless you’re in the trade or business of renting property or a real estate professional who materially participate in a real estate business, you won’t need to issue or file a Form 1099 to your contractors.

Soo Lee

Soo Lee

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Soo has over 10 years of experience in publicly traded companies and public accounting firms offering tax, accounting, payroll and advisory services to clients in diversified industries including manufacturing, wholesale/retail businesses, construction, real estate development and investment, banking, finance and professional/legal consulting service. In Particular, when Soo was at Pricewaterhouse Cooper, Soo worked with many foreign owned U.S. companies and advised clients on a broad range of issues including federal and state tax minimization especially through R&D tax credit, determination of the optimal structure for new foreign investments, restructuring and reorganization for existing operations.

Answers To Some Of The Most Common 1099 Questions

Soo Lee

Soo Lee

websitetwitter-link

Soo has over 10 years of experience in publicly traded companies and public accounting firms offering tax, accounting, payroll and advisory services to clients in diversified industries including manufacturing, wholesale/retail businesses, construction, real estate development and investment, banking, finance and professional/legal consulting service. In Particular, when Soo was at Pricewaterhouse Cooper, Soo worked with many foreign owned U.S. companies and advised clients on a broad range of issues including federal and state tax minimization especially through R&D tax credit, determination of the optimal structure for new foreign investments, restructuring and reorganization for existing operations.

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Note: at Keeper Tax, we're on a mission to help freelancers overcome the complexity of their taxes. That sometimes leads us to generalize tax advice. Please reach out via email if you have questions.

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