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What is Form 1099 – MISC for Freelance and Contractors?

The IRS Form 1099 – MISC is a returns form that informs the IRS that the person named in the form received taxable income during that said year. The 1099 form is one of the agency’s main weapons against underreporting taxable income in the self-employed target group.

In recent years, the 1099 culture has exploded tremendously as terms like “1099 workers,” “side hustle,” and “gig economy” have increasingly been linked with this tax form. The IRS may impose different forms of monetary penalties on hiring firms that fail to file the Form 1099 – MISC when required.

Who Receives the 1099 Form?

As a “miscellaneous income” form, all businesses must report any amounts sent to contractors or freelancers whom they paid $600 or more for service rendered in the 1099-NEC (Non-Employee Contractor).

It could be a lawyer, accountant, creative professional, or any other independent agent. In either case, you must issue the contractors you worked with their 1099 forms by January 31st of the year following the payout.

Some examples of contractors and freelancers that may receive this form include:

  • Nanny
  • Writers
  • Transcriptionists
  • Underwriters
  • Dancers
  • Musicians
  • Graphic/web designers
  • Event planners
  • Hairstylists
  • Photographers

 

The list is fairly long. As aforementioned, anyone who you hire to perform a task for you for payment but isn’t your employee is eligible to receive this form.

When Do 1099-MISCs Arrive?

Employers are required to send the form 1099-MISC to all contractors/freelancers they hired and paid before January 31st of the next year after completing the task assigned. Generally, the IRS requires you to file your form 1099-NEC by April 15th. If you can’t complete the return by then, you’ll still be required to pay your personal taxes but can request the IRS for an extension to file.

If you are to request an extension, the IRS will push back your deadline to mid-October. It may be best to hire a professional business accountant to assist you when faced with such circumstances.

If you don’t receive your 1099 form by February 1st, you should consider applying any of these options:

  • Self-report your income – refer to your income personally and report your total income for that said year
  • Ask your employer for the 1099 form – doing this will help you double-check your records to ensure you file the correct income amount. In most instances, the employer may forget to send your form 1099-MISC. A polite note can be a helpful reminder.

When You Must File Form 1099–MISC

As an employer, when filing form 1099-MISC, you must send it to the contractor or freelancer whenever a payment is made for services rendered. However, this rule is only applicable if the paid amount is $600 or more, and the contractor/freelancer isn’t an employee of the company. Essentially, you must file the form if the service rendered was in the course of conducting your business or trade. A business or trade is any activity offered for gain or profit.

Example: Christian owns several homes that he rents to tenants. Christian is renting homes to tenants. He pays a contractor to paint one of his rental homes $1,000 by check. Christian must report the $1,000 payment made to the contractor in Form 1099-MISC.

On the other hand, you don’t have to file the 1099 form if the services rendered were for non-business-related services. This can be payments made to independent contractors/freelancers for personal or household services. These can arise from payments made to babysitters, housekeepers, gardeners, etc. In these instances, running your home isn’t a profit-making activity.

Example: Christian hires a contractor to paint his own home and pays him a $1,000 check. Christian lives with his wife and family in this home. Therefore, it’s not a part of his rental business. Christian doesn’t need to document or report the payment made in Form 1099-MISC. That’s because the service rendered has nothing to do with his business.

Reporting Payments to Contractors & Freelancers

You must generally report all payments made as non-employee compensation, if any of the following conditions are met:

  • You made a payment to a non-employee
  • The payment was for services rendered in the course of your business or trade
  • You made a payment to an individual, estate, or partnership
  • You made payments of $600 or more to the payee during the year

Hire Professional Tax Professionals to File Your 1099 Form

Filing taxes can be a complicated and a frustrating process. FMA-CPA in Clearwater offers business tax services tailored to meet all your needs in Florida. Hire our business advisory in Clearwater to help you file your Form 1099-MISC today.

Contact FMA CPA today for any questions about the 1099 form and 2020 taxes. Our business tax professionals offer the best business advisory services in Clearwater. Get in touch for a free consultation today!