Business owners may hire employees and put them on the payroll, or they may engage the services of independent contractors. An independent contractor is an individual, business, or organization that provides a product or service to the business owner – but is not on their payroll. Independent contractors are generally self-employed.
Payments of $600 or more in one year to an independent contractor are reported on the tax form 1099-MISC. This form can also be called 1099-Miscellaneous. This multi-part form is prepared by the payer and used to report money paid to each independent contractor. The form must be provided to the contractor by January 31 of the year following when the payments were made. Other copies of the form must be sent to the IRS by the end of February and to state tax departments based on local requirements.
Form 1099-MISC must be filed with the IRS using a cover sheet called Form 1096, which basically summarizes the 1099-MISC forms being submitted. Form 1096 needs to be filed even if there is only one 1099-MISC reported.
Although most business owners will use the 1099-MISC to show payments to independent contractors, the form provides several boxes to report other types of miscellaneous income. 1099-MISC is used to report royalties paid of $10 or more in a year, commissions paid, attorney fees, and rents. The fair market value of awards and prizes, as well as fishing boat proceeds and other specific income sources, are reported using this form. For more information, read the IRS instructions for Form 1099-MISC.
As of this writing, the IRs will not accept 1099s printed from their website, as they cannot properly scan the forms. However, you can order supplies of Form 1099 and 1096 at no cost on the IRS website.
Coming Soon: Online 1099 Processing Software
from Patriot Software
With Freedom 1099, you can process payments to contractors and other vendors quickly and easily. The software keeps track of contractor payments throughout the year and generates a 1099 for each contractor, ready to print on official IRS forms. For more information on Freedom 1099, visit www.PatriotSoftware.com.