Not quite clear on the what, why and how of the 1099-MISC tax form? We’re here to break it all down.
What is the 1099-MISC?
1099-MISC forms are used to report all non-employee compensation for any freelance and independent contract labor you hired that exceeds $600 (per contractor) during the previous calendar year. The 1099-MISC allows these workers to calculate the tax payments for their services.
The information you need to fill out a 1099-MISC for each contractor can be found in two places: the W-9 form your contractors completed when they began work and your expense records in QuickBooks.
Don’t forget to complete and send your 1099-MISC forms before the January 31st deadline!
Which tax form is right for your staff?
Do you know if your workers should receive a 1099-MISC or a W2?
Worker classification is an increasingly important distinction to make in the growing gig economy. Essentially, on-demand or self-employed workers/independent contractors/freelancers are individuals who do service for you but are not official employees. If you’re still unsure about the distinction, check out this 1099 vs. W2 Wizard.
The majority of contractors get a standard 1099-MISC form. There are a few other 1099s out there that aren’t related, so don’t get confused if you see the following:
1099 S – sales or exchange of real estate
1099 DIV – dividends from investments
1099 INT –bank interest
1099 G –tax refunds or unemployment from government agencies
All contract labor that you pay for is recorded in the 1099-MISC. Payments for materials and parts used to perform these services should also be included if they were "incidental to providing the service." Visit the IRS website for a complete list of what payments should be included.
Here are a few scenarios to consider:
If you work with a fleet of independent contract landscapers, make sure they understand their relationship to your business as non-employees who are responsible for their own tax liabilities.
If you regularly work with a self-employed plumber who also sells you replacement parts for jobs that are not related to the services, the labor and product payments need to be tracked separately (watch this video to learn how).