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5 Min. Read

Small Business Owners: 1099 Rules for Employers

Small Business Owners: 1099 Rules for Employers

As a business owner, you likely have a grasp on business essentials. Things like your business costs, how much net income you bring in, and so on. But what about 1099 rules for employers? The term “1099” relates to income taxes and tax forms. More precisely, it refers to form 1099-MISC. If you are not sure where to get the 1099 form and other details, here is all you need to know about form 1099-MISC.

Here’s What We’ll Cover:

What Exactly Is a 1099-MISC Form?

Key Takeaways

What Exactly Is a 1099-MISC Form?

First things first. If you are a small business owner with employees on salary and you never hire contractors, this guide isn’t for you. That’s because your regular employees receive W2 tax forms, and 1099 tax forms don’t apply to them. Rather, the latter are forms for contractors (such as an independent contractor).

The term 1099 refers officially to federal form 1099-MISC. In this case, “MISC” means “miscellaneous.” But we find that this form is easier to remember if you call it a non-employee compensation form.

That name comes from the box that’s on the form designating how much you’re claiming. You may need a 1099 form, as many small businesses hire part-time employees who get hourly pay. Or, you might hire freelancers. These could be social media experts or graphic designers to help fill in the needs of your team.

Who Needs 1099-MISC Forms?

First, the person must be part-time or self-employed. Second, you must pay them an annual wage of more than $600. If they meet these two criteria, you need to give them a 1099. Doing so serves two purposes: One, it lets you report your employee’s income payments to the IRS. And two, it lets your 1099 worker do their own taxes.

Yes, the 1099 MISC is usually used to pay non-employee wages. But it also has other uses. You must fill out a copy to record payments to individuals exceeding $600. Let’s look at some examples of when you might need to use the form for this purpose.

  • Any compensation for non-employees. This may include commissions to non-employee salespeople, reimbursements for business expenses, and bonuses
  • Medical/health care payments
  • Prizes and rewards
  • Attorney fees
  • Rent

The examples above are more common. But there are also less common times when you might need to use a 1099 form, such as crop insurance revenue. Moreover, you’ll need to use a 1099 form if you paid at least $10 in royalties or broker payments. You would have paid these instead of dividends or tax-exempt interest.

And finally, you’ll use a 1099 if you made at least $5,000 in direct sales of consumer products. But only if those sales went to a non-permanent retail buyer for resale.

Acquiring 1099-MISC Forms

One of the easiest ways is using QuickBooks to file 1099 forms online. There’s also an online form for easy electronic filing. Plan on sending your forms through the mail? You’ll need to order hard copies from QuickBooks. Or, you can also pick up the forms at many office supply stores.

Keep in mind that you will need to collect the W9 forms from your applicable employees. These forms take the place of traditional W4s. A W9 contains all the identification information of the contractor. This includes their tax ID number, as well.

Filing 1099-MISC Forms

You must send the payee a form detailing the wages you paid them in the previous calendar year. And you must do so by January 31st. You’ll need to get back this completed form and submit it to the IRS by February 28th if you submit it in paper form. If you file electronically, you must submit it by April 1st.

Contained in the form are the following copies:

Copy A: Goes to the IRS

Copy 1: Goes to your state tax department

Copy B and Copy 2: You need to send both to the payee so that they can file their federal and state tax returns.

Copy C: Is yours to keep for your records.

Submit the 1099 form to the IRS online if you want a hassle-free experience. You’ll need to do this using what’s known as the FIRE System. FIRE stands for Filing Information Returns Electronically. Before using the FIRE System, you will need to first file IRS Form 4419. This is your application for electronic filing.

And lastly, you’ll need to file your 4419 at least 30 days before the 1099 due date.

Key Takeaways

As you can see, taxes remain a convoluted and often confusing process for many people. Fortunately, you can make your life a lot easier by using FreshBooks’ suite of essential tools.

FreshBooks helps you leverage and streamline your responsibilities as a business owner. From time savings to project management, there's a lot to assist you in your efforts. If you’re interested in even more support for your business, be sure to check out our Resource Hub.