So, you just hired an independent contractor or freelancer to perform some work at your company.
Before they start working on a project, make sure they complete FORM W9, then you retain this completed document for your company files. This form notes the individual or company’s name, address, social security number or EIN and is signed by the contractor. The information on this document is used to prepare FORM 1099. It is good business practice to obtain this from your contractors before you pay them. At the end of the calendar year, any independent contractor or freelancer that you paid more than $600, you need to prepare FORM 1099 and send it to them by January 31.
In addition, a copy of FORM 1099 is to be sent to the IRS. When you send the version to the IRS, make sure to include the transmittal FORM 1096. You will just need one FORM 1096. Your CPA firm or payroll provider can prepare and mail FORM 1099/1096 for you.
You probably hear people being classified as “1099s”, but what does this mean?
FORM 1099 is a tax form that the IRS defines as an “information return”. There are several types of 1099 tax forms. If you are classified as an independent contractor, self-employed or freelancer, you will receive FORM 1099-MISC from anyone where you earned more than $600 during the calendar year. Once you receive this form, you will report the information on your individual tax return, FORM 1040. You will receive this form every year, prior to January 31, if you earned over $600. A copy of this form is also sent to the IRS so they can keep track of payments to independent contractors and make sure that you report the income on your individual tax return.