This post was originally published on Jan. 2, 2015, and updated on Dec. 5, 2016, Nov. 20, 2017, and Nov. 27, 2018.
Everyone needs a little help now and then. In your business, you probably hired people to give you a hand in the various facets of your operation. Maybe you hired a graphic designer to create a lovely logo for you, or a customer service agent to help you deal with overwhelming holiday sales. If these people are not your employees, they are contractors and need to be given a 1099-MISC tax form. So, what is a 1099-MISC and when is the 1099-MISC due to contractors?
What is a 1099-MISC?
The 1099-MISC is a form that the IRS uses to have you report what you pay to people who are not employed by you, but to whom you have made payment in exchange for services.
When should you issue a 1099-MISC?
|Issue a 1099-MISC when …|
|You paid a contractor $600 or more in 2018|
|You paid at least $10 in royalties or broker payments|
|You paid $600 or more in rents, services, prizes/awards, other income payments, etc. (see below)|
|You have fishing boat proceeds|
|You paid an attorney $600 or more in 2018|
|You directly sold at least $5,000 of consumer products to a buyer for resale (see below)|
You should issue a 1099-MISC to someone in the following situations:
- You paid a contractor $600 or more during 2018.
- You pay at least $10 in royalties (reported in box 2) or broker payments in lieu of dividends or tax-exempt interest (reported in box 8).
- You pay out $600 or more in rents, services (which includes parts and materials), prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payments for fish you purchase from someone who is in the business of catching fish, or payments made from a notional principal contract to an individual, partnership or estate.
- Any fishing boat proceeds.
- Payments of $600 or more paid to an attorney.
Form 1099-MISC is also used to report any direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment. Additionally, you need to file Form 1099-MISC for each person from whom you have withheld any federal income tax under the backup withholding rules, no matter how much you have paid them.
When is 1099-MISC due?
|Form 1099-MISC is due…||When these conditions apply|
|Jan. 31, 2019||Due to recipients if there’s data in box 7 for non-employee compensation|
|Feb. 15, 2019||Due to recipients if you paid substitute payments in lieu of dividends or any proceeds to an attorney|
|Feb. 28, 2019||Copy A due to IRS if you’re filing manually and box 7 is empty|
|April 1, 2019||Copy A due to IRS if you’re filing electronically and box 7 is empty|
When is the 1099-MISC due to contractors AND the IRS? Here are your answers:
You need to have the 1099-MISC in recipients’ hands by Jan. 31, 2019. However, if you paid out any substitute payments in lieu of dividends (box 8) or any proceeds to an attorney (box 14), you have until February 15 to get these forms to the recipient. Be sure to factor in mailing time.
- If you’re filing your 1099-MISC manually and there’s no data in Box 7, you’ve got until Feb. 28, 2019 to get Copy A to the IRS.
- If you’re filing your 1099-MISC electronically and there’s no data in Box 7, you’ve got until April 1, 2019 to get Copy A to the IRS.
Penalties for filing 1099-MISC late
If you don’t get a correct 1099 to the recipients by the due date, and you cannot show reasonable cause, you may be subject to a penalty. The penalty would apply if:
- You don’t get the forms to the recipient on time.
- You don’t provide all information required to be shown on a 1099 return.
- You include incorrect information on the return.
- You file on paper when you were required to file electronically.
- You report an incorrect TIN (Tax Identification Number).
- You don’t report a TIN.
- You file paper 1099 forms that are not readable by machines.
You might be wondering about the amount of the penalty. The 1099 deadline penalties are based on when you file the correct information return. The penalties, according to the IRS, for businesses who make less than $5 million are as follows:
- $50 per return ($187,500* maximum) if you correctly file within 30 days (by March 30 if the due date is February 28).
- $100 per return ($536,000* maximum) if you correctly file more than 30 days after the due date, but by August 1.
- $260 per return ($1,072,500* maximum) if you file after August 1 or you do not file required information returns.
*As adjusted for inflation
Such additional costs are the last thing you want to deal with while you’re growing your business!
Calculating 1099-MISC amounts due in GoDaddy Online Bookkeeping
If you use GoDaddy Online Bookkeeping, it’s simple to figure out how much you owe to your contractors. Here’s how:
- Log in to GoDaddy Online Bookkeeping and make sure all of your payments to your contractors are entered and categorized correctly. We’ve provided the “contractors and freelancers” category for ease of use.
- Go to your Expenses tab and set your filters to Jan. 1, 2018, through Dec. 31, 2018.
- From your filtered Expenses tab, you can narrow this down further by entering each individual contractor’s name in the search tab.
- Viola! Online Bookkeeping has calculated the amount you paid each contractor.
If you have any questions about form 1099-MISC, including more detail about when 1099-MISC is due to contractors and/or the IRS, check with a good accountant who can walk you through all your options.
*As adjusted for inflation.
The above content should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.