Running a business never comes with a shortage of to-do items, especially when it comes to year-end planning. As you work through the close of this year and the beginning of the new one, it’s important to think through your employee-employer relationship and how you treat payments to those individuals.
How does a 1099 differ from a W2?
The relationship between the organization and the person performing services for your organization is incredibly important. If the individual is considered an employee, you are required to withhold payroll tax. However, if the person performing the services is an independent contractor, you do not need to withhold payroll tax.
When it comes to year-end planning forms, your employees receive Form W-2, while your independent contractors receive Form 1099-NEC.
What is the 1099 tax form?
Every entity that operates as a business must comply with certain IRS reporting requirements regarding payments made to other individuals and entities. The most common reporting requirement is the Form 1099 series.
The 1099 form series is a set of information returns that document payments to individuals who performed services for your organization.
Taxpayers that make certain payments to nonemployees during a calendar year must furnish annual information returns both to the IRS and to the nonemployee recipient of the payment. The filing of these returns helps the IRS determine whether the nonemployee is reporting all income received during the year.
In order to facilitate the reporting of these payments, IRS has developed the Form 1099 Series, which is a group of forms used to report ordinary kinds of payments made by a taxpayer:
Although each Form 1099 has its own specific reporting requirements, there are several filing requirements that apply uniformly to each of these forms.
Who gets a 1099 Tax Form?
If your company hires independent contractors throughout the year, then the 1099 form should be top of mind.
When do you have to submit Form 1099?
In most cases, the Form 1099 must be furnished to necessary recipients by February 1, 2021.
A resource to help you make sense of your Form 1099 requirements
Our 1099 eBook has what you need to understand, and correctly fill out, the 1099 forms.
The book includes: