What is it?
The 1099 form is a series of documents the Internal Revenue Service (IRS) refers to as “information returns.” There are a number of different 1099 forms that detail diverse types of income an individual may accept other than the salary received from his or her employer.
The paying entity (or say, an employer) is responsible for filling out the appropriate variant of 1099 form and sending it back to the individual. The many types of income may include interest, dividends or cancellation of debt all characterized under taxable income. There are 13 different types of 1099 forms used for various information reporting requirements which both the employers and employees must furnish to the IRS. Businesses make use of Form 1099s to account for payments made for rents, awards and services and payments made to subcontractors also called non-employee compensation.
Who is it for?
The IRS Form 1099 Misc is issued to individuals and partnership concerns that have paid $600 or more as rents, awards, royalties, annuities, services and other such payments in the course of business. Persons receiving a Form 1099 Misc form consist of human subjects including individuals, partnerships and limited liability companies (treated as partnership or sole-proprietorship) as well as independent service providing contractors.
Who is not required to file?
Businesses will not require a 1099 Misc if payments are made to a corporation. Similarly, individuals who make personal payments to an independent contractor, entirely unrelated to their business, need not send a 1099 Misc either. In short, 1099 Misc for payments made to cater to personal needs should not be issued.
When & how should it be filed?
Businesses can request the form from the IRS and fill it out appropriately. It is important to sign and date the form before dispatching the forms to the intended address. The address varies by the state depending where the business is located. Before filing however, it is advisable for businesses to request from their vendors and contractors submission of a Form W-9. The W-9 aids businesses in filling the 1099 Misc by providing them with legal names, addresses and taxpayer identification number for the contractors.
Penalties & interest
If business entities making payments exceeding $600 to independent contractors fail to file Form 1099, there is a $100 overall penalty on each form not filed or furnished to the contractor. Moreover a 1099-Misc not provided to the independent contractor (who is not a corporation or partnership) by the due date, will subject the business to a fixed penalty per return. Penalties are also incurred on returns filed either incorrectly or bearing incorrect taxpayer identification.