If you've ever performed freelance work in the U.S., you've likely seen a Form 1099 — Miscellaneous Income. It's the paperwork that arrives in your mailbox in late January or early February every year, giving you what you need to get started on your tax return. If you run a business that uses freelancers, you learn all too quickly what the employer's responsibility for these forms are, since you're required to send one to every independent contractor who has earned more than $600 working for you in a given year.
State and Federal Tax Forms
When preparing and sending 1099s, make sure that all the required documents are included. One part of the form is Copy B, which is designated for the recipient to keep on file. Tax preparers will often pull this part and set it aside as they focus on the copies designated for the IRS. Copy A is for the IRS and must be filed with the rest of the taxpayer's paperwork. Copy 1 is for the state tax department and Copy 2 is for submission with the recipient's state income taxes, where applicable. Copy C, on the other hand, is the employer's to keep on file. Make sure you keep a copy of every 1099 you file each year in the event your business is ever audited by the IRS.
Each January, review your records and identify any independent contractors to whom you've paid $600 or more in the previous year. You have until the last day in January or the following Monday, if January 31 falls on a weekend, to mail the forms to those contractors. In the days leading up to the deadline, check with each worker to make sure you have the correct address on file.
If you paid your contractors electronically, check with that service to see if you need to submit a 1099 for your employees. PayPal, for instance, issues Form 1099-K — Payment Card and Third Party Network Transactions to any recipient of more than $20,000 gross payments or 200 or more total payments. If that's the case, you'll receive a copy of that worker's form. The responsibility ultimately falls with the employer to follow up and make sure all payments are being reported.
Tax time can be a scramble for employers, who must make sure they not only report their own transactions, but that their employees and contractors can file their taxes on time, as well. If you have the right forms on hand, follow the instructions and get them in the mail by the late January deadline. The IRS can often answer any questions employers have about tax forms at 800-829-4933.