With technology advances, how a company hires and conducts its business has changed. Increasingly businesses are outsourcing certain functions that were traditionally handled in-house. ...Accounting and marketing are great examples of this.
As more companies use available resources in new ways, the question arises of whether those assets are labeled as employees or independent contractors. The IRS has increased scrutiny in this particular area and has implemented regulations to hold employers accountable for proper classification and reporting in these situations.
One of these is the enforcement of Form 1099-Misc issuance.
So assuming you use independent contractors in your business, what are some things you as a business owner need to know about these forms?
1. You issue them annually at the same time as you send W-2's to your employees. They must be sent to the person or company you paid for the prior year by Jan. 31.
2. You must also file with the IRS the summary Form 1096 along with Copy A of the forms by the end of February.
3. Report payments of more than $600 for services, rents, and legal fees, along with certain other industry-specific payments.
4. Be aware of exceptions. The form generally does not apply to goods, with certain exceptions such as fish purchases for resale.
5. The form also generally does not apply to payments to corporations with certain exceptions, namely health care and legal services.
6. Fishing boat proceeds are reportable on this form.
7. The payments are aggregated over the year. Even if you don't pay $600 at one time, if the total payments during the calendar year exceed that amount, your company needs to issue and file.
8. The form is informational only. No tax is due with the form.
9. The form is used for payments made in the course of your business. Do not include payments you made for personal use or using personal funds. All businesses, however they are legally organized (corporation, partnership, sole proprietor), are subject to the filing requirements, as are non-profit organizations.
10. The IRS uses the forms to match with the recipient taxpayers to ensure all earnings are properly reported.
To minimize hassle in January and ensure a smooth issuing process, a good practice is to have all vendors complete Form W-9 before they receive payment.
That form gives the information needed to determine if you have to file for that vendor, along with the data required to issue the forms. Form 1099-Misc is not overly complex to generate, however if you have questions, you may be wise to consult your payroll company or tax professional. My best wishes for a wonderful holiday season and happy reporting.
For all of your tax service needs call David M. Green Bookkeeping and Tax Service today.