IRS Form 1099-MISC is an information return that tells the IRS and other government agencies that the person named in the form has received taxable payments during the year. It's one of the IRS's main weapons in fighting underreporting by the self-employed. The IRS may impose various monetary penalties if a hiring firm intentionally fails to file a Form 1099 when required.
When Form 1099-MISC Must Be Filed
The basic rule is that you must file a 1099-MISC whenever you pay an unincorporated independent contractor-that is, an independent contractor who is a sole proprietor or member of a partnership or LLC-$600 or more in a year for work done in the course of your trade or business.
If you're a broker who employs independent contractor agents, you need to file 1099s for them, as well as any other contractor you paid at least $600 during the year.
Remember, however, that a 1099-MISC need be filed only when an independent contractors services are performed in the course of your trade or business. A trade or business is an activity carried on for gain or profit. You don't have to file a 1099-MISC for payments for non-business related services. This includes payments you make to independent contractors for personal or household service-for example, payments to babysitters, gardeners, and housekeepers. Running your home is not a profit-making activity.
Example: Eddy owns several homes he rents out to tenants. He is in the business of renting houses. Eddy pays Linda, who operates a painting business as a sole proprietor, $1,750 to paint one of his rental houses. Eddy must report the $1,750 payment to Linda on Form 1099-MISC.
Example: Eddy pays Linda $1,750 to paint his own home. He lives in this home with his wife and family and it is not a part of his home rental business. Eddy need not report this payment on Form 1099-MISC because this work was not done in the course of his business.
In addition, some business-related payments do not have to be reported on Form 1099-MISC, although they may be taxable to the recipient. These include:
- payments to corporations (except for incorporated lawyers)
- payments for merchandise, telephone, freight, storage, and similar items, and
- payments of rent to real estate agents (but the real estate agent must use Form 1099-MISC to report the rent paid over to the property owner).
How and When to File Form 1099-MISC
Form 1099-MISC is a multi-part form. Here are the parts of this form and where to send each:
- Copy B and Copy 2 are for the independent contractor and must be provided no later than January 31
- Copy A must be filed with the IRS no later than February 28, or March 31 if you file electronically,
- Copy 1 is for your state taxing authority if your state has a state income tax; the filing deadline for most states is February 28, but some states require earlier filings--check with your state tax department, and
- Copy C is for you to retain in your files.
You can obtain a 30-day extension on the time to file 1099s by filing IRS Form 8809, Extension of Time to File Information Returns. The form must be filed with the IRS by February 28. The extension is not granted automatically. You must explain the reason you need it. The IRS will send you a letter of explanation approving or denying your request.
Today, a majority of businesses file their 1099s with the IRS electronically instead of on paper. If you are required to file 250 or more information returns, you must file electronically with the IRS. Electronic filing can be easily accomplished with accounting software such as Quicken and QuickBooks. There are also several websites that provide 1099 filing services. Payroll tax services can also file these forms for you. Independent contractors must be provided with a paper copy of the 1099-MISC unless they agree to accept an electronic version.
If you want to file a paper 1099-MISC, you cannot simply photocopy the form from the IRS website. Because it is a multi-part form, you need an original copy, which you can obtain from the IRS or stationery or office supply stores.
If you have questions about filing Form 1099-MISC, you may call the IRS toll-free at 1-866-455-7438.