How to File 1099 Online: 5 Easy Steps
According to Edelman Intelligence, the majority of the U.S. workforce will be freelancers by 2027. This means that the odds of you hiring an independent contractor or gig worker in the next few years are pretty high—as are the odds of you having to learn the federal tax laws and filing processes for this special category of worker.
If you’re planning to hire a freelancer (or if you’re already working with a few), then you’ll have to know how to prepare and file the right tax forms. In this guide, you’ll learn more about the 1099-MISC form, when the filing deadline is and how to file it online.
NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.
What Is a 1099 Form?
The 1099 form is a document that the Internal Revenue Service (IRS) calls an “information return.” There are a variety of 1099 forms, but there’s one thing that they all have in common: They are all used to report the different kinds of non-salary income that you earn in a tax year.
In this article, we’ll be talking about the 1099-MISC form specifically, which lists all of the income that a person gets from non-employee or non-salary compensations such as commissions, bonuses, contractual payments, royalties and more. 1099s are also filed by business owners who make rent payments, with the exception of businesses that rent via a property manager.
Who Should File a 1099?
If you are a small business owner, you must file 1099 information returns for every vendor, service provider, freelancer, independent contractor, self-employed person or non-incorporated business that you’ve paid more than $600 during the tax year.
This includes business entities that are limited liability companies (LLCs), partnerships or sole proprietorships, but excludes C or S corporations. You should also file a 1099 if you rent a space from anyone who isn’t a property manager.
Below are the most common exceptions:
- If you paid that specific vendor less than $600 (cumulative) over the tax year: The independent contractor still has to report their income on their Schedule C form, but you don’t have to file a 1099 for them.
- If you are renting from a property manager: Property managers file their own 1099-MISC forms and send them to the property owner, so you don’t have to.
- If you hired a C or S corporation: This holds true even if you worked with an individual who happens to be registered as a corporation.
- If the vendor/freelancer was hired and classified as an employee: Employees require a completely different form, the W-2. Misclassifying an employee as an independent contractor (usually to avoid paying certain taxes or offering government-mandated wages/benefits) may result in significant penalties.
When Should You File Your 1099?
Individuals need to file their personal tax return (along with their 1099 forms) at the same time every year, on April 15. As a small business owner, you are required to send out your 1099 forms to your contractors before January 31. You are also required to file the 1099 with the IRS by the last day of February for paper filings or March 31 for electronic/online filings.
If you miss the deadline, you could be penalized anywhere from $50-270 per form up to a maximum of $500,000 a year. However, if you intentionally ignore filing requirements or deadlines, the IRS may decide to penalize you $550 per incorrect form with no cap.
How to Prepare Your 1099 and File Electronically
Preparing and filing a 1099-MISC form doesn’t have to be complicated. In fact, you can do it in five easy steps:
1. Prepare Your Documents (W-9s)
It’s easier to fill out 1099 forms if you already have all the information you need readily available. By the time you start with the 1099s, the contractor should have already provided you with a completed W-9 (ideally before you contracted their services), and you are legally allowed to withhold 28% of the pay if the form wasn’t submitted or contains inaccurate information.
A vendor’s W-9 is extremely useful because it contains their tax filing status, which will tell you if you need to create a form for that specific contractor. It also includes a vendor’s name, address, and Employer Identification Number (EIN) or Social Security number (SSN).
2. Obtain the Forms
Unfortunately, you can’t just print the paper forms off the internet—you need to get official 1099 forms from an official source. There are a few places you can get them, such as:
- From the IRS: Order 1099s and other information returns/forms straight from the IRS, either by purchasing from the website or by calling 1-800-TAX-FORM (1-800-829-3676).
- From an office supply store: You can buy packets of 1099-MISC forms at your nearest office supply store. You may also be able to order them online via the store’s website.
- From an accounting firm: Local accounting firms usually have stacks of forms that you can purchase. Alternatively, if you work with a firm or accountant, they can provide you with the necessary forms.
- From your payroll software provider: If you use an automated payroll/accounting program like FreshBooks, you should already have access to these documents. Furthermore, one of the major benefits of payroll software is that they support filing online.
3. Complete the 1099
Once you have the data and the forms, reporting your 1099 becomes much easier. When you fill out the form, you’ll have to provide the following information:
- Your SSN or EIN
- The contractor’s name and SSN/EIN
- How much the contractor was paid
- If any pay was withheld and how much
Remember, you need to fill out two copies of the 1099-MISC form for each contractor that you worked with: One form (Copy A) has to be submitted to the IRS, while the other (Copy B) should be sent to the independent contractor on time.
4. Send the 1099 Form to Your Vendors/Freelancers
Copy B of the 1099-MISC forms should be sent to all your contractors on or before February 1. This allows them to include it in their personal tax returns and accurately report their yearly income. If you miss this deadline, the IRS can penalize you with fines.
5. Submit Your 1099 Forms
There are two ways of reporting Copy A of the 1099-MISC:
- Snail mail: Mailing your IRS forms is the traditional way of paper filing. You must send out your 1099s no later than January 31 of the year. You also need to attach form 1096, which tracks your 1099 filings.
- Online: You can now submit 1099 forms via the IRS’s online submission service, the Filing a Return Electronically (FIRE) system. To use the FIRE system, you need to do the following:
- Request a Transmitter Control Code (TCC) from the IRS via form 4419. You must fill this out and submit it at least 30 days before the 1099 deadline.
- Create a FIRE system account.
- Complete your 1099s via a supported accounting or payroll software.
- Submit the document (in the proper format) via the FIRE system.
For 2020, if you file more than 100 1099-MISC/W-2 forms a year, you must submit online. These information returns can be filed at federal/state levels, so always double check if you need to undergo state filing as well—ask your accountant or a local firm if you have questions or need additional tax support.
Reporting your 1099s can be tedious, but it’s a necessary evil if you want to avoid hefty fines from the IRS. You can save time by filing your tax forms online through the FIRE system. Better yet, you can hire an accountant or use accounting software like FreshBooks to do it for you.