1099 Form: When and Why to Use It

By HBS Tuesday, January 3, 2017

what is a 1099 form

The 1099-MISC form reports total payments to the IRS, from either an individual or an entity, to an independent contractor that has provided services throughout the year that total more than $600.

Any person or company that makes payments throughout the year to an independent contractor is mandated by the IRS to report these payments on a 1099-MISC form to both the recipient and the IRS.

Examples of types of payments may include:

  • Rent
  • Freelance or work-for hire-payments to writers, artists, consultants, etc.
  • Home repair, carpentry, plumbing, electrical and fix-it services
  • Services such as babysitting, childcare, home cleaning and yard maintenance
  • Prize money, award money and winnings
  • Payments in lieu of corporate dividends, salary or bonuses

One common use of the 1099-MISC form is for freelancers to report the earnings from their independent contractor work. (Its function is similar to a W-2 for an employee). The 1099 should include the freelancer’s personal information, including name, address and Social Security number or EIN.

Equally common is utilizing a 1099-MISC for household help. This would include a person who cleans your home or office and is paid more than $600 during the course of the year to do so but is not on the payroll.

Even the person who mows your lawn or cleans your pool is supposed to receive a 1099-MISC form if you pay them more than $600 during the calendar year.

However, if your service payments are made by check to corporations, or entities with Employee Identification Numbers rather than individuals, you do not need to send a 1099-MISC.

100 form: when and how to use it

Companies that receive payments for their services are required to keep track of these payments and count them as income for tax purposes.

If you are in doubt as to whether or not to send a 1099 form, you should send the individual an IRS W-9 form, which is a request for an individual’s SSN or EIN number.

If they report their income as a corporation, you do not need to report payments to them on a 1099 form.

The 1099 form also classifies the type of payments received, based on the work completed. Employers should send the 1099 form out by January 31, to both the individual and the IRS.

The minimum amount for which a 1099 form must be sent from an employer is $600 annually; every employer or individual that has paid $600 or more during the course of a tax year to an independent contractor is obligated to send a 1099 form by January 31 after the year’s books are closed.

Recently, the IRS has been looking more closely at taxpayers’ responsibilities to send W-9 forms and 1099 forms to independent contractors, so make sure you comply. The penalties can add up and be expensive.

*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.

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There are 2 comments left for 1099 Form: When and Why to Use It

Nicole Miller said: Tuesday, June 5, 2018

I am a 1099 hair stylist in the city of Hiram Georgia and the city wants me to pay $125 for a city tax license as a stylist who is on commission in a salon already with city tax and sales tax license. Can anyone say why I would need to do this?

HBS Staff replied: Monday, June 11, 2018

Unfortunately, that is out of the realm of our experience. Your best bet would be to consult an attorney or an accountant.

ABA TRAVL & ENT said: Wednesday, January 4, 2017

I think this data/info may help to refresh/review as often as possible to avoid or prevent conflicts headaches etc

HBS Staff replied: Wednesday, January 4, 2017

We will certainly update the information whenever necessary.

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