In the US, there are anywhere between 10.5 to 15 million independent contractors, which is almost 10% of all workers!
It’s clear that there’s a huge transition from 9-to-5 jobs to freelancing. But for many people, figuring out how to be an independent contractor is still something very difficult to do.
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For instance, there’s the 1099-MISC form.
What is 1099-MISC anyway and do you need it? And if so, when should you get one and where should you send/file it? Read on to find out the answers to these questions and more!
What Is 1099-MISC?
Form 1099-MISC is a form from the Internal Revenue Service (IRS). As the name suggests, it’s for miscellaneous income. More specifically, people who are non-employees need to submit this form to report any business payments they’ve received in the past year.
Do note that this is not a form for you to report personal payments, as the 1099-MISC form is strictly for business use.
Who Needs to Get a 1099-MISC Form?
As we’ve said above, non-employees need to get a 1099-MISC form. Who does this include? People such as:
- Independent contractors
- Self-employed people
If you’ve made over $600 in a calendar year from a client, then you’ll usually automatically receive a 1099-MISC form from those clients.
Do note that while it’s up to your clients to send you a 1099-MISC form if they’ve paid you over $600 in a year, in the end, it’s still your responsibility to make sure they’ve filled one out for you. Otherwise, you risk facing penalties from the IRS.
What if You Made Under $600 From a Client?
If you made under $600 from a client, you won’t receive a 1099-MISC form. However, you need to still report your income to the IRS.
What’s on the 1099-MISC Form?
You can think of the 1099-MISC form as almost the same thing as a W-2, except that it’s a form for non-traditional workers.
On this form, the client reports the payments they’ve made to you throughout the year. Other information the 1099-MISC includes are:
- Your full name
- Your address
- Your Social Security Number (SSN)
- Their employer identification number (EIN)
For the payments themselves, in most cases, they’ll be grouped in separate boxes, according to what you were paid for or why you were paid.
When Do You Get Your 1099-MISC?
Usually, you’ll get a copy of your 1099-MISC form by January 31st every year. The client will also send a copy to the IRS by themselves before March 1st.
How to File 1099-MISC
Now that you know more about it, you’re probably wondering how to file 1099-MISC. There are 2 ways: on paper or electronically.
Filing on paper is only an option if you have 250 or fewer forms.
While you can certainly file on paper, it’s preferred that you file electronically. Not only is this more convenient, but it’s also quicker ad more cost-effective. For these reasons, we highly recommend that you file electronically instead of on paper.
What Happens if You Don’t File 1099-MISC?
The 1099-MISC is a way for the IRS to check that what you earned matches what your clients report. If you don’t file your 1099-MISC forms, then you’re essentially trying to get away with not reporting your income.
As you might’ve guessed, if the IRS finds out that you’re omitting income, there will be penalties to pay. In addition, they’ll come after you and make you pay the proper taxes owed on that income. The state might also do the same, so you’ll be hit with 2 income taxes to pay.
You can also be subjected to a penalty if the IRS has requested you to file electronically, but you’ve filed on paper. So make sure you double-check what the IRS asks of you, or else risk paying a penalty.
What Happens if You’re Late in Filing 1099-MISC?
If you already know that you’re going to be late in filing 1099-MISC, you should ask for an extension. This can be done by filing form 8809, which is the Application for Extension of Time to File Information Returns.
With form 8809, you can automatically get an extension of 30 days from your original due date. This is if you file it before the due date. If you need even more time after that, you can file form 8809 again for an additional 30 days.
However, do note that to get the additional 30 days afterward, you need to fall into some special circumstances, such as:
- Your business is in its first year
- A key individual in your business is absent, seriously ill, or dead
- You’re in a disaster area and have suffered a catastrophic event
These aren’t the only circumstances that allow you an additional extension, so check the form for more information.
If you don’t file for an extension or you don’t receive one, then the IRS may charge you a late filing penalty of $50.
Don’t Forget to File Your 1099-MISC Income
So what is 1099-MISC? It’s a form from the IRS that clients have to fill out and give to you if you’ve made more than $600 from them in a calendar year.
The 1099-MISC form is specifically for people who are non-employees. So if that’s you, make sure you get the proper forms from your clients and file on time to avoid penalties from the IRS. And if you know you’ll be filing late, make sure you file form 8809 and get a valid extension so you don’t get charged a late filing fee.
Now that you know more about 1099-MISC, hopefully, this has made your business operations a lot smoother!
If you found this article on the 1099-MISC form beneficial, then please take a look at our other blog posts now!