In our last post, we demystified the elusive W-2 Form received from employers for wages earned on the job. However, non-employees who do contract work for a company will receive a Form 1099-Misc instead of a W-2.
Like the W-2, the 1099-Misc Form is an IRS form used for tax purposes only. This form reports miscellaneous payments to individuals for a calendar year. The IRS refers to 1099s as “information returns.”
The person or company who pays you to do the contract work is responsible for filling out the appropriate 1099 form and sending it to you by January 31st of each year. If you earned more than $600 from a person or company, you should receive a 1099-Misc.
When you prepare your income tax return for the year, you are required to report all income showing on the 1099 forms you received and pay income tax on these amounts. If you did work for a company or individual and did not receive a Form 1099-Misc from them, you are still required to report the income to the IRS as self-employment income.
1099 Forms are also issued for other reporting requirements such as: acquisition or abandonment of secured property, proceeds from broker and barter exchange transactions, cancellation of debt, changes in corporate control and capital structure, dividends and distributions, certain government payments, interest income, and other miscellaneous type of income. Each 1099 form will have a letter or series of letters after the “1099” that indicates which type of form is being reported. (Ex. 1099-A, 1099-DIV, 1099-K, 1099-Misc).
All non-employees should receive their Form 1099-Misc by January 31st, and an additional copy of the same 1099 is sent to the IRS by February 28th.
Visit more posts in our Payroll 101 series:
Setting Your Own Salary as a Business Owner
How Often Should You Pay Employees?
What are the Costs Associated with Payroll?
5 of the Best Benefits to Offer Employees