Have you reported the payments made to contractors on IRS 1099 Tax Form? Do you know why to report the payments? 1099 Forms are basically known as information return forms. They provide information about the payment made to individuals who are not treated as employees throughout the tax year.
Getting tensed? Don’t worry! We will let you know why IRS 1099 Tax Form are important. We also provide information about what happens if you fail to report the payments to the IRS.
How 1099 Forms are important?
Given below are the uses of 1099 tax Forms to:
Internal Revenue Service
The IRS uses information provided on 1099 Form to check whether the individuals are report the income on the tax returns or not. It tells the IRS who got paid and from whom they need to collect the taxes.
1099 returns help the business owner to estimate how much income they have paid other than salary or wages.
Form 1099s helps the contracts to report the income received on the tax return form. Due to which underreporting income can be avoided.
Who needs to get a Form 1099?
As we know, there are numerous 1099 Tax Returns in the 1099 series. All of them look similar but are used for different purposes. So, the common requirements to get a 1099 information return are:
- Payments made to the individual are on the course of your business or trade.
- The amount paid to the contractor as rent, prize or reward, dividends, interest, etc throughout the tax year exceeds $600.
- Contractor who received the income may be an individual, LLC, attorney, partnership, landlord, etc.
Who doesn’t need an IRS 1099 Form?
Following are the circumstances that don’t require 1099 to be issued:
- If you hire an independent contractor who is outside the US, then the contractor is considered as “international contractor”.
- Furthermore, you must not issue 1099 information to the international contractor.
- When you made payments to an individual apart from regular wages who is a corporation. Payments made to corporations like C or S corporations must not be reported on the tax form.
- If your business makes payments made to a real estate agent or property manager, then don’t record the payments on 1099.
- Payment made to a self-employed individual through third-party networks like PayPal, VISA, etc doesn’t need a 1099 Form.
Apart from the above, payments for merchandise, telephone, freight, employees, tax-exempt organizations also don’t require a 1099 Form to be issued.
What happens if you don’t file a 1099 information return?
Businesses may face the risk of penalties for not filing a 1099 information return within the deadline. Furthermore, Congress has increased penalties for businesses that fail to meet with 1099 reporting rules. Failing to report the contractor payment intentionally could cost you $530 per contractor for both the contractor copy and the IRS copy. Besides, penalties for submitting incorrect information return forms charge differently. However, the risk of paying more taxes may increase if you go under audit and the IRS finds it.
Does an employer require a W-9 Form to file 1099?
Yes, the employer who hired/paid an individual apart from regular salary requires a W-9 Form to file a 1099 return. Generally, when a business pays $600 or more to an independent contractor required to report these payments on a 1099 Form. However, the business owner must obtain the payee’s name, address, social security number or TIN, by requesting W-9 Form. W-9 Form provides complete information about the payee. On the other hand, filing an information return with incorrect information of the payee may result in withholding taxes from the payee. Hence, the W-9 Form helps in avoiding B notices.
Is 1099 Form and W-9 Form similar?
No, 1099 Form and W-9 Form are not similar. Instead, they serve for different purpose. W-9 Form used to request payee’s Taxpayer Identification Number, name, address, and the type of the individual i.e., corporation, LLC, etc. on the other hand, 1099 Tax Form used to report income paid to an individual other than regular wages. Moreover, you can’t file an IRS Form 1099 without obtaining a W-9 Form.
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