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A 1099 form is a tax form used for independent contractors or freelancers. The 1099-Misc form is a specific version of this that is used for anyone working for you that is not a true employee.

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1099-Misc Form: What Is It?

A 1099 form is a tax form used for independent contractors or freelancers. The 1099-Misc form is a specific version of this that is used for anyone working for you that is not a true employee. A 1099-Misc form must be used any time a non-employee makes over $600.

A 1099-Misc form can also be used when someone makes royalty income. If this is the case, a 1099-Misc form must be filled out when a person makes at least $10 in royalties.

The 1099 forms are used to help keep track of income and they are required for filing taxes. The 1099-Misc form details the income but also notes that you have not deducted any federal, state, or other taxes from the income. It is important to accurately fill out the 1099-Misc form so that the IRS can appropriately tax the contractor's income.

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Overview of Fields in a 1099-MISC Form

Any employer who has paid more than $600 of miscellaneous income (hence the "MISC" in the name) to an independent contractor or attorney, or who has issued more than $10 in royalty payments, is typically required by the U.S. Internal Revenue Service to complete and send a 1099-MISC tax form to the IRS along with a copy to the recipient of the funds.  The payer also will generally retain a copy of the 1099-MISC form for his or her own records.  Employers can acquire a fillable 1900 form by calling 1-800-TAX-FORM to request it or by navigating the website of the IRS, which is located at www.irs.gov.

Once you've received your copy of the fillable 1099 form from the IRS, you'll want to familiarize yourself with the various fields, or boxes to be filled in, on the form.  Upon first glance, it might seem like the IRS has packed a large number of fields onto that little 1900-misc form, which is hardly more than half a page in length.  However, when you break it down and take it one field at a time, it's really not so complicated after all.  Let's take a closer look and see what those little boxes are all about.

Under the checkboxes that say, "VOID," and "CORRECTED" (which are only to be used in special circumstances), you'll find in the upper left corner a relatively large field for the payer's name and basic contact information.  Under that large box will be two smaller fields:  one on the left for the payer's federal identification number, and one on the right for the recipient's identification number (that's a fancy way of referring to his or her social security number, though it could also be an individual taxpayer identification number (ITIN) or adoption taxpayer identification number (ATIN)).

Interestingly, even though the contact information for the payer was just one large box, the fields for the recipient's name, street address, and city/state/zip code are all separated.  These separated fields are located under the fields for the federal identification numbers of the payer and recipient of the 1099-misc form.  Underneath those fields are the account number field and the "2nd TIN not." field.  The account number is generally to be filled if the payer has multiple accounts for a recipient for whom he is filing more than one Form 1099-MISC , while the "2nd TIN not." field is to be filled with an "X" mark if the payer has been notified by the IRS twice within three calendar years that the payee had provided an incorrect TIN.  In the two fields below that, if there are any applicable Section 409A deferrals or income, that is where this would be indicated.

On the right side of the form, the fields are numbered and are therefore easier to identify.  Directly in the middle of the form will be a very commonly used field:  nonemployee compensation, or field number seven.  However, this is not the only type of payment that warrants the issuance of a 1099-MISC, so this popular field is surrounded by other fields, some more commonly used than others.  These include fields one through three, which signify rents, royalties, and other income; fishing boat proceeds, or field number five; Payer-made direct sales of $5,000 or more of consumer products to a buyer (recipient) for resale, or field number seven; field number 10, which indicates crop insurance proceeds; and fields thirteen and fourteen, which indicate excess golden parachute payments and gross proceeds paid to an attorney, respectively.  (Notably, boxes eleven and twelve are shaded in and can be ignored).

Further to the right side of the form, there are fields four, six, and eight.  Fields six and eight represent more types of payments that may have been made to the recipient:  medical and health care payments, and substitute payments in lieu of dividends or interest.  Field four, meanwhile, indicate not payments, but rather any federal income tax withheld from the recipient.  Finally, toward the bottom right-hand corner are fields sixteen through eighteen, known as "state information."  These fields are only provided for the payer's convenience, and they do not need to be filled by the payer.

That's really all there is to it:  eighteen fields, many of which don't need to be filled by the majority of payers.  Payers who familiarize themselves with these fields will soon discover that the 1099-misc isn't so complicated after all.

Instructions for Filing a 1099-MISC Form

If you are an employer, there is a distinct possibility that you may be required by the U.S. Internal Revenue Service to file a form known as 1099-MISC.  This tax form is not to be confused with a W-2 form , which is used by employers to report an employee's annual wages as well as the whatever taxes were withheld from that employee's paycheck.  In contrast, this form is to be filed by any employer who has paid more than $600 of miscellaneous income to an independent contractor or attorney.  It would also need to be filed by an employer who has issued more than $10 in royalty payments to any recipient.  A copy of the form would be sent to the IRS, and another copy would be forwarded to the recipient of the funds.  In addition, it is expected that the payer would retain a copy of the form for his or her own records. 

Payers who are required to file a 1099-MISC will need to know, for starters, where to get this form.  Acquiring a fillable 1099 form is not difficult if you know where to look.  A fillable 1099 form will be sent to you if you call 1-800-TAX-FORM and request it.  To find the form online, log on to the Internet and navigate the website of the IRS, which is located at www.irs.gov.  That website has a search box, which will make it easier to find the form online.

Completing and filing this tax form are easier than you might think.  In fact, you may discover that many of the fields (or fillable boxes) on the form won't even need to be filled.  Fields 11 and 12 are perfect examples of this, as they are completely shaded in and therefore can be ignored.  Furthermore, fields 15a, 16, 17, and 18 are entirely optional and hence do not need to be completed.  Then there are fields which will only need to be completed by a relatively small, highly specialized segment of the employer population; examples would include fields 5 (fishing boat proceeds), 10 (crop insurance proceeds), 13 (excess golden parachute payments), and 15b (Section 409A income).  However, all employers who are required to file this form will need to complete the fields on the left side of the 1099 form, which indicate both the employer's contact information and federal identification number as well as those of the recipient .  The applicable fields indicating nonemployee compensation, royalties, rents, and other income should also be completed by the payer.

As alluded to earlier, if you are the payer then you will need to fill out multiple copies of the 1099-MISC form.  Copy A must be sent to the IRS, and you may also need to send Copy 1 to your state's tax department.  Copy B will need to be sent to the payee or recipient, and Copy 2 is to be filed with the recipient's state income tax return if required.  Finally there is Copy C, which is for you, the payer, to retain for your own records.

Filing due dates will vary each tax year, but if you make sure to file all copies of the form by the end of January, then you (the payer) will likely be in compliance.  The specific mailing address to send Copy A to the IRS may differ according to the payer's location, so it is advisable to refer to the "Instructions for form 1099-MISC," which is available via www.irs.gov.  It may be more convenient for you to file electronically, but in order to do that, you must have certain software that can generate a file according to the specifications found in Pub. 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G.

No matter how you choose to file it, it should not be extremely difficult or burdensome to file a form 1099-MISC.  The important thing is to file it in a timely manner and make sure that both the payee and the IRS receive their copies.  For further assistance with this, you can call the designated IRS information reporting customer service site toll-free at 1-866-455-7438.

  Components of a 1099-Misc Form

 

components of a 1099-misc form Taxpayers receive a variety of documents outlining their annual earnings in the months prior to everyone’s favorite national pastime: Tax Day. Most employed individuals are familiar with the W-2 form, however, the W-2 is just one of many information returns forms used to report income to the Internal Revenue Service. Just as the W-2 form reports income earned by employees, the 1099-misc 2015 form reports all non-employee compensation. It’s often associated with independent contractors such as freelance writers, or individuals who are self-employed. However, the form has uses beyond those.

The 1099 form has varied applications. The 1099 misc form reports all Miscellaneous Income; anything that does not have a place on standard tax forms belongs on a 1099 misc. It must be filed for royalties or broker payments of $10 or more. The 1099 misc form is also required for any payment of $600 or more made during the year for: rents, services, prizes and awards, medical and healthcare bills, attorney costs, crop insurance proceeds, fish (or other aquatic life) purchased in cash from anyone in the fishing business, and cash payments from notional principal contracts to an individual, partnership, or estate. The 1099-misc form is required for any proceeds from the sale of a boat, even if they are less than $600. Additionally, the 1099-misc form applies to direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent resale establishment. Finally a 1099 misc form must be filed for any person from whom the taxpayer has withheld any amount of federal income tax such as under the backup withholding rules.

The form must include the names, addresses, and federal identification numbers of the payer and the recipient. An account number is required if the payer has multiple accounts for a recipient whom they are filing multiple 1099 forms for. Each type of miscellaneous payment then has a specific box on the 1099-misc form:

Box 1. Rents

Box 2. Royalties

Box 3. Other Income

Box 4. Federal Income Tax Withheld

Box 5. Fishing Boat Proceeds

Box 6. Medical and Health Care Payments

Box 7. Nonemployee Compensation

Box 8. Substitute Payments In Lieu of Dividends or Interest

Box 9. Payer Made Direct Sales of $5,000 or More

Box 10. Crop Insurance Proceeds

Box 13. Excess Golden Parachute Payments

Box 14. Gross Proceeds Paid to an Attorney

Box 15a. Section 409A Deferrals

Box 15b. Section 409A Income

Boxes 16-18. State Information

Generally, it is simple to figure out where to record the payment in question. However, certain boxes encompass payment types that may not be intuitive. For example, Box 7 includes expenses incurred for the use of an entertainment facility as nonemployee compensation. Box 6 deals not only with federal income tax withheld from backup withholding, but also from payments made to Indian gaming revenues. Box 3, the miscellaneous section of the miscellaneous income form, is specifically the place to record prizes and awards that are not from services performed.

Once completed, the payer must send a copy of the 1099-misc form to the IRS and a copy to the paid individual. 

A Tax Guide
For Independent Contractors AND The Companies Who Hire Them
By Justin Gomer & Jackson Hille

An Overview of Tax Filings for Freelancers

In 2014, 91 million 1099-Misc forms were issued by employers, up nine million since 2010. These 91 million tax forms represent individual contracts, not individual workers. In other words, since an independent contractor can, and often does, sign multiple contracts in a given year, there are not 91 million Americans working in the gig economy. The figure does, however, indicate the scope and upward trend of freelance work in the current American economy.

Rather than the standard W-2 form, freelancers receive 1099-Misc forms from the companies they contract with throughout a given year. Like the W-2, the 1099-Misc is a form provided by employers to workers that summarizes the wages earned and taxes withheld from an individual. The difference? There are a few important ones, but the bottom line is this: A 1099-Misc is the W-2 equivalent for independent contractors. W-2 forms are for employees; 1099-Misc forms are for independent contractors. A 1099-Misc is used to account for the miscellaneous income that freelancers earn over the course of a year.

Why Use This Guide?

Why Use This Guide?

As a standard employer or employee, taxes are relatively simple. Employers submit a W-2 to an employee, and the employee uses the W-2 to fill
out either a 1040-EZ or a 1040A tax form. For freelancers, and employers who contract with
them, tax filings are more complex for two reasons:

  1. The varying classifications of freelance work.
  2. The many forms required to file taxes
    properly for both contractor and employer.
Who Should Use This Guide?

Who Should
Use This Guide?

All freelancers that take home more than $600 and any business professional involved in an industry that employs freelance work, which pays out more than $600 per year in contract work, will find useful information in this guide. Think of it as your digital handbook to freelance tax information.

How Should This Guide Be Used?

How To Use
This Guide?

We think of this guide as a digital post-it note for freelancers and their employers during tax season. It offers detailed instructions on completing and filing the main tax forms. Use this guide to educate yourself well in advance of tax season so you can properly and efficiently file your taxes come April.

Meet Our Authors

A Tax Guide for Independent Contractors and the Companies Who Hire Them is a go-to resource for all freelancers and their employers, co-authored by Justin Gomer and Jackson Hille.

Justin Gomer is a Lecturer at the University of California, Berkeley , and soon-to-be author of two books.

Jackson Hille is a Content Associate at FormSwift and the 2013-14 Departmental Citation Recipient in American Studies from University of California, Berkeley .

Related Resources

FormSwift also offers a complete suite of tax forms for businesses. These tax forms can be filled out with our easy to use pdf editor.

Top Tips and Rules for Employers & freelancers

This guide considers both sides of the employer/contractor relationship and provides an informative breakdown for both parties, so that when taxes are due next year, you have a single resource that prepares you to submit all of the requisite paperwork with your accountant or tax filing service. In other words, whether you are an employer or freelancer, this guide is your one-stop shop come tax season.

How Do I Determine If a Worker is an Employee or Independent Contractor?

According to the irs the distinction centers around three variables:

1 Behavioral Control

Behavioral Control, according to the IRS, “covers facts that show if the business has a right to direct and control what work is accomplished and how the work is done, through instructions, training, or other means.”

2 Financial Control

Financial Control, according to the IRS, “covers facts that show if the business has a right to direct or control the financial and business aspects of the worker's job.” This includes, but is not limited to, the reimbursement of business expenses, how the worker is paid, and the ability for the worker to realize profit or incur a loss.

3 Relationship of
the Parties

Relationship of the parties, according to the IRS, covers the specific details of the relationship between the employer and worker including: terms of contract, benefits and compensation, permanency of the relationship, and how integral the services provided by the worker are to the daily operations of the company.

What Form(s) Do I need to Order From the IRS?

You need to order a 1099 form from the IRS, along with a 1096 transmittal form, which you can do for free by following the instructions on the following page:
https://www.irs.gov/Businesses/Online-Ordering-for-Information-Returns-and-Employer-Returns

When Should I Order Them?

You must issue a 1099 to its recipient by January 31st of the year in which you are filing your taxes. For example, a 1099-form for a contractor that worked for you in 2015 must be issued to the contractor by January 31, 2016. Additionally, You must send the red copy of the 1099-form to the IRS by the last day of February by mail, or by March 31 if you are doing so electronically.

To Whom Do I Send a 1099-Misc Form?

This is an important question for both employers and contractors. The key is to remember the “600” rule: employers must issue a 1099-Misc form to anyone that is paid $600 or more in “rents, services (including parts and materials), prizes and awards, or other income payments.”1 A contract that totals less than $600 does not require a 1099-Misc.

1099-Misc Forms must therefore be completed and sent to any contract worker you paid over $600, or anyone who received more than $10 in royalties. This includes any lawyer you paid over $600, even if she or he works for a law firm. All lawyers are considered contract workers, so you must complete a 1099-Misc for any who received more than $600 in payment.

What About Vendors? image

What About Vendors?

If you plan to hire a vendor for contract work over $600, request a W-9 form from the vendor beforehand. By incorporating this as part of your hiring protocol for contract work, you will get an early start on collecting required information—such as the contractor’s mailing information and Tax ID number—for the subsequent 1099 filing.

Requesting a W-9 in advance will also enable you to avoid the complex scenario of backup withholding, which requires you to set aside 28% of the payments you paid to an independent contractor if you do not have his or her tax info during filing time.2

How Do I File My Taxes?

As a freelancer, you do not generate your own 1099-Misc form. Instead, the company who contracted with you furnishes the form in January of the year after you complete the contract. This means that if you contracted with multiple companies you will receive multiple 1099-Misc forms (one from each company). If you completed multiple projects with a single outfit, they will send you a single 1099 that includes all of the work you completed with them. The exception to this rule is if you received less than $600 in payment from a company. Labor that amounts to less than $600 does not require a 1099.

Your responsibility, then, is to use the info from the 1099(s) you receive to fill out your income tax forms and send it to the IRS along with those other customary tax forms.

What Are My Tax Obligations?

Freelancers are responsible for both self-employment and income tax. Generally, the amount of income subject to self-employment and income tax equals 92.35% of your net earnings (net earnings = income - business expenses). While self-employment taxes are collected annually, income taxes are collected on a quarterly basis, due on the 15th of April, June, September, and January.

How Can I Stay On Top of My Tax Payments?

Plan ahead and keep detailed records. Set aside money each month not just for your end of year taxes, but for your quarterly payments as well. Additionally, there are a number of write-offs for the expenses you incur—a portion of your mortgage/rent, utilities, home office, etc.—depending on how you structure your work. Keeping detailed accounting records of these costs will ensure you can minimize your tax burden at year’s end. So itemize all of your expenses and commit to a thorough system of recordkeeping.

What If I Am a Writer or Graphic Designer, or
Have Low Business Expenses/No Employees?

Schedule C-EZ is primarily for writers and graphic designers that meet the following criteria:

  1. Business expenses are less than $5000
  2. Have no employees
  3. Have no merchandise inventory (Etsy Shop owners must use Schedule C because of this provision)
  4. Are not using depreciation nor deducing the cost of their home.
What About Vendors? image

Which Expenses Should I Keep Track of to Write-Off?

Everything. Seriously. Here’s a list to get you started:

  • business & health insurance
  • travel costs
  • meals with clients
  • computer repairs
  • vehicle costs (repairs, gas, etc.)
  • education
  • business expenses like office supplies,
    business cards, etc.
  • interest on business related credit cards
  • lawyer fees

Where On My Tax Form Do I Declare the Above Expenses?

You will enter deductions from the list above in either Schedule A or Schedule C of your 1040 tax form. You’ll record items like interest paid, insurance expenses and charitable gifts in Schedule A, while your expenses—vehicle, insurance, education, travel, events, home office, supplies, meals, etc.—will go in Schedule C.

About

Are you a business that relies on freelancers? Are you a freelancer with tax questions? If you answered yes to either question, then you need to read, A Tax Guide for Independent Contractors. This practical guide, presented by FormSwift, provides the answers you need to common tax questions. You’ll learn about 1099s, how to determine if someone is an employee or an independent contractor, and how to file your taxes. Be prepared for tax season.

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