If you pay independent contractors or freelancers $600 or more annually, you need to report the payments to the IRS on Form 1099-NEC (nonemployee compensation). The process is relatively quick and simple for companies with just one or two 1099s, but time adds up when issuing several 1099s.
Filing electronically can save you time, but you must follow IRS guidelines. Since contractors must receive the forms by January 31, meeting the requirements well before the year begins is a good idea. Here’s what you need to know about issuing 1099 forms.
Choose a method for issuing 1099s
You can issue 1099 forms electronically or through the mail. The IRS provides digital statements. You can download and print the PDF file. Your payroll provider or accounting firm may have digital and physical copies of various business tax forms, or you could check with your local Small Business Association or tax assistance centers.
If you file Form 1099-NEC on paper, you also must print and complete Form 1096, Annual Summary and Transmittal of U.S. Information Returns. However, the IRS said, “Form 1096 is not required for filing electronically.”
According to Blue Summit Supplies, “you can handwrite a 1099 or W2.” But processing errors can occur due to illegible or inaccurate documents. Many small business owners prefer to send 1099s through email or an online service.
The IRS has several requirements for furnishing Form 1099 electronically. You can include this information in their contract or via email. Some online services may handle this for you. But take care of it early, so you don’t miss the filing deadline.
The requirements consist of:
- Informing your contractor that you will provide a paper copy if they do not consent to an electronic form.
- Explaining how they can withdraw consent, get a paper copy, and update their information.
- Giving your contractor a list of software and hardware needed to view, print, and save their 1099.
- Detailing what and how long the consent form is good for.
- Getting written consent to send the contractor their statement electronically.
If you’re mailing a paper form to the IRS, you typically must send the 1099 by February 28 (postmarked by that date).
Riley Adams, CPA, TurboTax
Consider using low-cost online services
IRS-approved online tools can help you issue 1099 forms. The vendors offer additional features, like a taxpayer identification number (TIN) match service, free printable versions, and IRS e-filing services. Some also integrate with accounting tools such as QuickBooks, Zero, and Bill.com.
Check out the following services:
- Track1099: It costs $2.99 for one to 20 forms, and the price decreases the more statements you buy. Track1099 also offers national and foreign postal mail services.
- TaxBandits: Pricing starts at $2.75 per form with a federal e-file. TaxBandits offers an online retrieval option for $0.25 more per 1099.
- efile4Biz: It costs $3.25 for an e-file, or you can choose print and mail options. Additionally, efile4Biz has direct-to-state filings.
- eFile360: Pricing starts at $2.75 for one e-file form. Plus, with eFile360, you can verify TINs.
Gather required information
Have your freelancer fill out contract worker forms before tax time. Form W-9 provides their name, address, and tax identification number. Also, you will need to know how much you paid them during the tax year. If you don’t have a W-9 on file, ask your contractor to complete it. You can send fillable PDF copies through email or your payroll provider’s online portal.
[Read more: 5 Perks You Can Offer 1099 Workers]
Complete and send Form 1099
According to the IRS, you must make information returns available to recipients by January 31. TurboTax said, “If you’re mailing a paper form to the IRS, you typically must send the 1099 by February 28 (postmarked by that date).”
You can also upload 1099s to a secure website or use a third-party service. In this case, you must let recipients know when their statements are posted and ready for viewing. The IRS requires forms posted to a website to remain available until October 15 of the year after you originally paid the contractor.
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