January 31 is the federal deadline for reporting nonemployee compensation (box 7) on Form 1099-MISC. Electronic payments made to businesses using a credit card, debit card, or a payment processor like Paypal or Stripe are reported to the IRS separately using Form 1099–K. These are informational returns used to report income to the IRS. States have their own reporting requirements and you can see a summary of them here.
How do you know whether your business needs to file a Form 1099-MISC with the IRS?
- An independent contractor is someone who is not your employee. Employees’ compensation and tax withholdings are reported on a W-2.
- An unincorporated business is a sole proprietor, partnership, or LLC taxed as a sole proprietor. Payments made to corporations, including LLC’s that elect to be taxed as a C or S corporation, do not need to be reported on Form 1099-MISC. However, the following payments made to corporations generally must be reported on Form 1099-MISC.
- Medical and health care payments reported in box 6.
- Fish purchases for cash reported in box 7.
- Attorneys’ fees reported in box 7.
- Gross proceeds paid to an attorney reported in box 14.
- Substitute payments in lieu of dividends or tax-exempt interest reported in box 8.
- Payments by a federal executive agency for services (vendors) reported in box 7.
- If you meet the above requirements, you only file a Form 1099-MISC when your business pays for services via cash, check, or ACH. Electronic payments made using a credit card, debit card, or a payment processor like Paypal or Stripe are reported to the IRS separately using Form 1099-K. More on that later.
What if I paid a foreign service provider or company?
The IRS wants to know about all work performed in the United States. So if the work was performed in the United States, regardless of whether is was by a U.S. citizen or a non-U.S. citizen, your business still needs to issue a Form 1099-MISC. However, if the services were provided by a non-U.S. citizen and all the work was performed outside the United States, then you are not required to issue a Form 1099-MISC.
The formal way of requesting that info is by using Form W-8BEN. They would need to fill out part 1 and part 3 of the form if you paid them over $600. You would hang on to the form for your records in case you were ever audited.
How do I issue and file a Form 1099-MISC?
The easiest and fastest way to do this is online using a site like 1099online.com or tax1099.com. Programs like QuickBooks, FreshBooks, and Xero can help you track expenses and then file 1099’s with the IRS. If you run payroll through a program like Gusto, you can also track independent contracts and have Gusto file the required tax forms for you.
- Make a list of those who meet the reporting requirements for receiving a Form 1099-MISC.
- Send them a W-9 to collect their Taxpayer ID Number, address, and business name.
- Create an account with 1099online.com or tax1099.com.
- Add a payer which will be your business information.
- Create the payees. This is everyone who needs to receive a 1099 (Use W-9 info).
- Enter the amount of “nonemployee compensation” (box 7 on the form) each person received.
- Choose the option to have the 1099-MISC mailed to the recipient.
- eFile the 1099s with the IRS after carefully reviewing them. No need to prepare Form 1096!
What if I forget to issue a Form 1099-MISC?
Unfortunately, you could be assessed a fine if you were audited and the IRS found out that you didn’t submit all required 1099s.
If I don’t get a 1099, does that mean I don’t have to report the income?
So what’s a Form 1099-K?
Remember how I said payments made using your credit card, debit card, or merchant processor are exempt from the Form 1099-MISC filing requirement? Credit card companies and payment processors (PayPal, Square, Stripe, etc.) take care of reporting the electronic payments to the IRS with Form 1099-K.
Your business may or may not receive a Form 1099–K because they’re only required to report the earnings of those merchants who process over $20,000 and over 200 credit card payments (cash excluded) per calendar year. So if you only processed 150 credit card payments, don’t expect to receive a Form 1099–K, but it’s still income. Only charged $10,000 using Stripe? No Form 1099–K for you, but you guessed it, you still need to report that as income.
If you have any questions about 1099’s or preparing your tax return, I’d love to help!