An independent contractor is someone who does work for your company but is not on the company payroll. With an independent contractor, you do not have to pay payroll taxes, benefits and other payments you would have to make to employees. Instead of issuing a W-2 to independent contractors, you issue a form called a 1099-MISC. It is a different type of income reporting form and it is much simpler than a W-2.
Make Sure You Have All Of Your Information
For each independent contractor, you will need their tax ID number, name, address and the amount of money you paid them during the tax year. If you paid an independent contractor less than $600.00 for the year, then you do not need to issue a 1099-MISC form to them. But an contractor you paid over $600.00 to for the year must get a 1099-MISC form.
Getting The Right Forms
Unlike most other tax forms issued by the IRS, you cannot download or print blank 1099-MISC forms from the IRS website. You must buy these forms by calling 1-800-TAX-FORMS to get the proper forms. There are special parts of the blank 1099-MISC forms that are scanned by the IRS computers and only the specially printed blank forms will work. If you try to submit printed forms they will be rejected.
Filling In The Form
The payer’s name and tax ID boxes are where you put in your company information that includes company name and address. The tax ID is either your federal EIN or your own social security number, depending on how your business is registered. The recipient’s identification number is where you would put the tax ID number for your contractor, and the nonemployee compensation box is where you would enter how much money they made in the tax year.
Distributing Forms To Your Contractors
Your independent contractors get the Part B of the 1099-MISC and they must either be postmarked by February 1, or you must physically hand them to your contractors by February 1. If you miss this deadline, you could incur serious IRS penalties.
Getting Information Back To The IRS
IRS form 1096 is a summary of all of the 1099-MISC forms you have issued for that tax year. You must mail your 1096 and all of the Part A copies of your 1099-MISC forms to the IRS and have them postmarked no later than February 28th (or 29th on a leap year). You do have the option of filing all of your 1096 and 1099-MISC Part A information online, but you must file them before the March 31 deadline.
You would keep all of the Part C copies of the 1099-MISC forms for your records, and be sure to make a copy of the 1096 before you mail it. This will allow all of your independent contractors to file their taxes and legally claim their income.