In this tax season, let us check on how to close the tax books and to prepare the tax documents. When you employed an independent contractor and paid them $ 600 or more for their business service, you need to prepare and issue the Form 1099 MISC to the concerned individual.
IRS Form 1099 MISC
IRS 1099 MISC Form accumulates a person’s income from all his / her non-employee compensation. The independent contractors use this Form 1099 to calculate and file their taxes. When you are an employer, you must send the Form 1099-MISC to all the contractors you have employed and paid them $ 600 or more during the tax year.
So next point is how to prepare the Form 1099 for the independent contractors is the next question, right? Follow the below steps to prepare the Form 1099
- Track your Records
Initial step to begin the 1099 process is to collect the required information of your independent contractors. Before hiring an employee, you must have filled out the Form W9 for your independent contractor which contains the name, contact address and Social Security Number (SSN) or Employer Identification Number (EIN).
Check whether the contractor has changed any of the information prior to initialize the process. When the contractor has omitted specific information in the W9 form, according to IRS guidelines you can withhold 28% of the pay of contractor and send it to the IRS. This is called as “backup withholding”
- Obtain 1099s
When you got all the information of the independent contractors, you can get your form 1099. Form 1099 MISC cannot be downloaded or you cannot use the sample form from the IRS. Use specific forms that are readable by the IRS scanner, which process all the Form 1099s. Order the Form 1099s from the IRS website or you can call +1 800 829 3676 to get the Form 1099.
- Complete the Forms
When you have all the related information and the 1099 forms in hand, you can start filling out the forms. Provide your Federal Tax ID number, which may be a SSN or EIN. Add the information of the contractor by including their EIN or SSN.
In the Form 1099, include the money paid to the contractor under “Non-Employee Compensation”. When you withheld the contractor’s pay, you need to mention that in the required section. Complete the form by giving the contact information.
- Send the Forms
After completing the forms, the next step is to send the forms. You can send the Form 1099 through mail or give the 1099 Copy B in person to the independent contractor before February 1. When you failed to meet the deadline, it may lead to IRS penalties.
- Mail Form 1096 to the IRS
IRS 1096 Form sums up the total from your tax returns, here it is for Form 1099s. When you are filing through mail, you need to mail the Form 1096 and Copy A of each Form 1099 to the Internal Revenue Service before February 29th. If you are e-filing, you need to send it by March 31st.
- Record your filing
Ensure to keep copy C for the records for future reference or when there are queries regarding the provided information to the IRS.
Preparing and filing the Form 1099-MISC for each of the independent contractors may be time consuming and requires a lot of effort. And when you have more number of contractors, it will be a massive work. But preparing and issuing the Form 1099 to the independent contractors is an important task when you employ them and opt their service.