Prepare a 1099 for a Contract Worker
The Internal Revenue Service requires you to prepare a 1099-MISC form for a contract worker if you paid the person more than $600 during the fiscal year. That $600 figure includes all trade- or business-related payments, including money you gave to a contract worker for materials and parts. You cannot give a 1099 form to a worker who is an actual employee of your company.
Completing the Form
- Obtain a 1099-MISC form from the IRS or another reputable source. You can ask the IRS to send you the necessary form by calling 1-800-TAX-FORM (1-800-829-3676) or navigating to their online ordering page.
- You can also buy 1099-MISC forms at your local office supply store although most only come in batches of 25 or 50. These are perfectly compatible with IRS scanners.
- Note: You cannot just download a 1099-MISC form from the internet or from the IRS sample page and use it to fill out information. The 1099 form that you send the IRS has to be readable in its scanners. If you send the IRS a non-sanctioned 1099 form, you could face a penalty.
- Fill out your federal tax ID in the appropriate box. This is either your personal Social Security Number or your Employer Identification Number, depending on your business's structure. If you don't know your federal tax ID, read more about how to get it here.
- Fill out the contract worker's identification field out using his or her Social Security Number. When you hired the contractor, you should have requested him or her to fill out a W-9 form. Along with information about person address, the W-9 will tell you their SSN.
- If the contractor doesn't give you their W-9 form or fails to provide an SSN, the IRS expects you to start withholding taxes on their behalf. You are expected to withhold 28% of the contractors pay and then remit it to the IRS.
- Enter the amount of money you paid to the contract worker throughout the year in Box 7. Box 7 should be titled "Non-employee compensation."
- Write down how much federal or state income tax you withheld from the contract worker's pay in either Box 4 or 11. Given the fact that you worked with an independent contractor, it isn't likely that you withheld any taxes, although you may have for two reasons:
- The contractor failed to return a W-9 form or didn't provide an accurate Social Security Number in the W-9. In this case, the IRS expects you to withhold 28% of their pay.
- The contractor is a foreign national. The IRS expects you to withhold about 30% of the non-US citizen's pay unless that contractor's home country is exempted because of a tax treaty with the US.
- Fill in the contact information fields for both your company and the independent contractor. A phone number is only required for your business.
- Enter the state where your company is located in in Box 12. The IRS prefers that you use a two-letter abbreviation for your state instead of writing out the full name.
Sending the Form
- Mail or give the 1099 to your contract worker no later than January 31 following the tax year. If you do not mail our or give 1099s to your contract workers before January 31, you could face a penalty from the IRS.
- Send Copy A of the 1099 to the worker's home tax revenue department no later than February 28. You do not have to do this if income tax is not deducted from the worker's pay in the state in which he or she resides.
- Mail both Form 1099 and Copy B of the 1099 that you prepared for your contract worker to the IRS by February 28. If you complete your taxes electronically, the deadline is March 31st.
- Keep Copy C of the 1099 for your own records. It is recommended that you retain copies of all of your tax documents for at least 4 years.
- If you are filling the 1099 form out by hand, make sure you press hard enough on the form so all copies are legible. By pressing too lightly, you may end up with an unreadable carbon copy.
- Contact the IRS if you are not sure about the difference between an actual employee and a contract worker. The IRS takes an employer's obligations to an employees very seriously. It is illegal to classify as a contractor a person who is actually an employee.
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