Have you reported the payments made to contractors on IRS 1099 Tax Form? Do you know why to report the payments? 1099 Forms also known as information return forms. They provide information about the payment made to individuals not treated as employees throughout the tax year.
Getting tensed? Don’t worry! We will let you know why IRS 1099 Tax Form important. We also provide information about what happens if you fail to report the payments to the IRS.
How IRS 1099 Tax Form is important?
Given below the uses of 1099 tax Forms:
Internal Revenue Service
The IRS uses information provided on the 1099 Form to check whether the individuals report the income on the tax returns or not. It tells the IRS who got paid and from whom they need to collect the taxes.
Business owner
1099 returns help the business owner to estimate how much income they have paid other than salary or wages.
Independent contractors
Form 1099s helps the contracts to report the income received on the tax return form. Due to which underreporting income can be avoided.
Who needs to get an IRS Form 1099?
As we know, numerous 1099 Tax Returns there in the 1099 series. All of them look similar but uses for different purposes. So, the common requirements to get a 1099 information return are:
- Payments made to the individual on the course of your business or trade.
- The amount paid to the contractor as rent, prize or reward, dividends, interest, etc throughout the tax year exceeds $600.
- The contractor who received the income may be an individual, LLC, attorney, partnership, landlord, etc.
Who doesn’t need an IRS 1099 Form?
Following circumstances where they don’t require 1099 to be issued:
- If you hire an independent contractor outside the US, then the contractor considers an “international contractor”.
- Furthermore, you must not issue 1099 information to the international contractor.
- When you made payments to an individual apart from regular wages who is a corporation. Payments made to corporations like C or S corporations must not report on the tax form.
- If your business makes payments made to a real estate agent or property manager, then don’t record the payments on 1099.
- Payment made to a self-employed individual through third-party networks like PayPal, VISA, etc doesn’t need a 1099 Form.
Apart from the above, payments for merchandise, telephone, freight, employees, tax-exempt organizations also don’t require a 1099 Form to be issued.
What happens if you don’t file a 1099 information return?
Businesses may face the risk of penalties for not filing a 1099 information return within the deadline. Furthermore, Congress has increased penalties for businesses that fail to meet with 1099 reporting rules. Failing to report the contractor payment intentionally could cost you $530 per contractor for both the contractor copy and the IRS copy. Besides, penalties for submitting incorrect information return forms charged differently. However, the risk of paying more taxes may increase if you go under audit and the IRS finds it.
Does an employer require a W-9 Form to file 1099?
Yes, the employer who hired/paid an individual apart from regular salary requires a W-9 Form to file a 1099 return. Generally, when a business pays $600 or more to an independent contractor required to report these payments on a 1099 Form. However, the business owner must obtain the payee’s name, address, social security number or TIN, by requesting W-9 Form. W-9 Form provides complete information about the payee. On the other hand, filing an information return with incorrect information of the payee may result in withholding taxes from the payee. Hence, the W-9 Form helps in avoiding B notices.
Is the 1099 Form and W-9 Form similar?
No, the 1099 Form and W-9 Form not similar. Instead, they serve different purposes. W-9 Form used to request payee’s Taxpayer Identification Number, name, address, and the type of the individual i.e., corporation, LLC, etc. on the other hand, 1099 Tax Form used to report income paid to an individual other than regular wages. Moreover, you can’t file an IRS Form 1099 without obtaining a W-9 Form.
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