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How Are 1099-MISC’s Used for Freelancers and Contractors?

A 1099 is a form required by the IRS for tax purposes. There are several variations of the 1099 form. A 1099-DIV, for example, is used to document dividend income. A 1099-S is used for proceeds from real estate transactions.

And the 1099-MISC is used most often for payments that are made to non-employees. (Think contractors and freelancers.) The person or company you paid will use this form to file their own income taxes. It’s similar in ways to the documentation you give your full-time employees.

1099-MISC’s vs. W2’s

1099-MISC’s are very similar to W-2’s in that they both document how much has been paid to people doing work for your business. The difference is that 1099-MISC’s are for independent contractors, while W-2’s are for employees on your payroll.

Where it gets tricky is that while all employees will receive a W-2, not all contractors will receive a 1099-MISC. There are certain requirements in place for when a form 1099-MISC needs to be filed.

What Kind of Work Requires a 1099-MISC?

A 1099-MISC should be filed for work involving any of the following:

  • Personal and/or professional services (including parts and materials used in performing the service)
  • Rental fees (equipment, lodging, venue rentals, etc.)
  • Copyright, licensing, and royalty payments
  • Conference registration
  • Membership dues
  • Speaker fees
  • Transportation
  • Advertising (when an ad is “created” by a vendor)
  • Medical and healthcare services

No service in conjunction with the payment. Not for reimbursements.

Is There a Minimum Payment Requirement for 1099-MISC’s?

If you have paid someone who fits into one of the categories above more than $600 over the course of the year, you will need to file a 1099-MISC. If you hired someone for design services but only paid them $400, for example, you would not need to file. Payments can be made by cash, check, ACH transfer, or wire.

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What Is the Deadline for Filing a 1099-MISC?

The deadline for filing 1099-MISC’s is January 31 of the following year. This means that if your designer did more than $600 of work for you in 2019, their 1099-MISC form is due no later than January 31, 2020.

What are the Exceptions for 1099-MISC Filings?

1099-MISC’s are intended to be used for services provided by individuals, sole proprietors, and partnerships. If the company you paid is an S Corp, C Corp, or tax-exempt entity like a not-for-profit, a 1099-MISC would not be required. That said, legal fees and medical services will always be reported using a 1099-MISC regardless of their entity structure.

You also will not need to send a 1099-MISC if the payment was made with a credit card, debit card, or third-party vendor like PayPal. In that case, the third party will issue the 1099-MISC.

How to File a 1099-MISC

It’s January, and you realize that you need to file a 1099-MISC for the work your freelancer designer did last year. So how do you go about doing it?

The very first step is to make sure you have all the information you’ll need to complete the form. When you hire someone to do freelance or contract work, you should ask them to complete a W-9 form off the bat. This form will give you important information like the payment recipient’s name and address, their EIN or SSN, and their business entity type. The W-9 will also help you determine if this person even needs a 1099 at the end of the year.

When in doubt, request a W-9.

You will add all of that information, along with your own name and address and the amount paid to the 1099-MISC form. The template provided shows several variations of the form. By January 31, you will need to submit the correct versions of the form to both the IRS and the payment recipient. (If you send out multiple 1099’s, you’ll also need to fill out a Form 1096, which is a summary of all your 1099’s.)

If you’re not sure you need to send someone a 1099-MISC form or if you’ve paid lots of freelancers and contractors throughout the year, a qualified accountant can help you work through it all and send out 1099-MISC’s on your behalf. Just remember to get them involved early, so that you’re not rushing to get everything out the last week of January.

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