Small businesses often use the services of contractors or non-employees to save the budget. But in that case, they have to file a 1099 form to the IRS. Study the article to learn what are 1099 forms.
What is a 1099 Form?
A 1099 form is an IRS tax form. It is used to report income. The most common form is 1099-MISC that is used to report miscellaneous revenue. For example, when a business pays a non-employee $600 and more within a year.
Types of 1099 Forms
There is more than 1 type of 1099 form. Here are some of the most commonly used forms:
- 1099-MISC/NEC. The most common one used to report the income of contractors, payees, non-employees that got $600 or more as payment from the business during the year.
- 1099-A. Utilized by lenders in case of property transfer due to closure.
- 1099-B. Utilized by brokers to submit sales of stocks, transactions, losses, and gains.
- 1099-C. Utilized in case of credit card debt forgiveness. IRS sees this as a taxable profit.
- 1099-CAP. Utilized in case of any gains in cash or stock by shareholders caused by various structural changes in the company.
- 1099-G. Used by government organizations to record profit paid to taxpayers, for example, for unemployment or other types of aid.
- 1099-R. Used in case there were any withdrawals from a retirement account.
- 1099-S. Utilized to record and report sales or revenues from real estate, or to report income from royalties.
If you own a small business, most likely you work with contractors or non-employees. If you pay them $600 or more, you are to submit the 1099-MISC/NEC form.
Why is the 1099 Form so Important for Small Businesses?
The very first thing to keep in mind is that it’s important to submit reports on time or you will be penalized (details are mentioned further in the article). But the main reason to file such forms is so that independent contractors can file properly their taxed income gained from businesses.
Who Receives and Files the 1099 Form?
The following categories of employees receive 1099 forms:
- self-employed;
- not an employee of a business that gained profit from the company ($600 and more during a year);
- no-corporation LLC.
For example, freelancers, lawyers, contractors receive a 1099 form.
Deadlines for Filing 1099 Form
The following deadlines should be met to submit the forms to IRS:
- January 31 — to submit 1099 NEC
- February 28 — to submit the form to IRS. Includes such forms as 1099-MISC, 1099-MISC, 1099-B, 1099-S, 1099-DIV, 1099-R.
The following deadlines should be met to submit the forms to the recipients:
- January 31: 1099-MISC, 1099-MISC, 1099-DIV, 1099-R, 1099-INT.
- February 15: 1099-B & 1099-S.
Not filing a form on time results in getting penalties.
What are the Penalties for not Issuing the 1099 Form?
Penalties for small businesses aren’t big at the first glance, but they can dig a huge hole in the company’s budget if you neglect to submit several 1099 forms. The penalty usually depends on the delay and the reasons for not filing the form.
Most 1099 forms are to be submitted by the end of the tax year — January 31, but some forms can be submitted before February 15 (to recipients), and February 28 (to the IRS). Detailed deadlines are described above in the article.
Here are a few examples of fines that you can get if you won’t submit a form on time:
- 30+ days of the delay — $50.
- 30+ days, but sooner than August 1st — $110.
- Submitting on August 1st or after this date — $270.
- Purposefully ignoring submitting the form costs $550.
In some cases, IRS can decide to penalize a business more severely. Note, the biggest fee you can get for not filing a 1099 form is not more than $1,130,500 for a tax year.
If you neglect properly submitting 1099 forms, you can end up paying several penalties at a time. It can cut your revenue in half, so make sure to properly file 1099 forms.
FAQ
What are the rules for the 1099 forms?
The main rule is that the business has to file a 1099 form to every contractor (a person who provided services or materials for the business), or payee that received $600 or more from the business during the tax year. An investor will receive a 1099 form from the business if they received $600 or more in dividends during the tax year.
What business types are considered “small” by IRS?
A business is considered “small” if it earned annually less than $5 million during the last three tax years.
Can a company owner file 1099 themselves?
No, sole proprietorship companies do not have to file 1099 forms since they don’t do business with themselves. Only if another business paid you more than $600 during one year, you get a 1099-NEC from that business.
Who is supposed to receive 1099 from your business?
As it was mentioned, there are different types of 1099 forms. Your business is supposed to send a 1099-NEC form to every contractor or worker that received $600 or more from your business. It can include such payments as rent, services, materials or components, awards, etc.
