A 1099 is an information return that the Internal Revenue Service requires to report certain types of income, such as income paid to an independent contractor. Though businesses and corporations may issue most 1099 information returns, there are some situations that may require an individual to issue a 1099.
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There are several different versions of the 1099 information return. 1099-MISC is one of the versions most commonly used by individuals. You must file a 1099-MISC for every individual to whom you paid certain types of miscellaneous income during the year. The IRS uses these forms to determine the tax liability of the payees, and the payees must use the form to complete their federal tax return.
Reasons for Issue
Individuals may file a 1099-MISC to report money they paid to another individual for rent, royalties or prizes. An individual may use 1099-MISC if he owns or operates a fishing boat and made payments to crew members. If an individual employs an independent contractor to perform services such as yard work or odd jobs and pays him more than $600 during the year, he must also issue a 1099-MISC.
If you must file a 1099-MISC for income you paid to an individual or entity, you must obtain the payee's taxpayer identification number, correct address and other relevant information by providing him with Form W-9. You must use the information on the W-9 to complete the 1099-MISC, and you must provide the payee with a copy of the form by January 31. You must also file a copy of the form with the IRS by February 28 if you file on paper or by March 31 if you file electronically.
If IRS guidelines require you to file a 1099 and you fail to do so, you may be subject to a penalty of up to $100 for each return you fail to file. You may also owe a penalty if you fail to file your 1099s on time, or if you don't provide them to payees by January 31. However, you won't owe any penalty for a payee who fails to report his income as long as you provide him with the proper documentation.