A business owner generally must file Form 1099-MISC when they pay an unincorporated independent contractor at least $600 in a year for work performed in the course of the business. You do not need to file this form if you make electronic payments by using a credit card or debit card but only if you make payments by direct deposit or in cash. An unincorporated independent contractor is someone who works on their own or who is a member of a partnership or limited liability entity instead of a corporation. The purpose of Form 1099 is to inform the IRS that the independent contractor has received taxable payments so that it can check the record against the income reported by the independent contractor. You may be subject to penalties if you do not file Form 1099 when it is necessary.
Exceptions to Filing Form 1099
You do not need to file Form 1099 if you paid an independent contractor to provide services that were not related to your business. For example, if you pay a landscaping service or a housekeeper for services related to your home, this does not need to be reported on Form 1099 unless your home is tied to your business. If you do not make a profit from the activity related to the contractor’s services, this strongly indicates that you do not need to file Form 1099.
Exclusions from Form 1099 for business-related payments that may be taxable include payments for merchandise, inventory, freight, and storage, as well as rent payments to real estate agents. Form 1099 applies only to unincorporated independent contractors, so any payments to corporations are excluded. There are exceptions for corporations that consist of lawyers or doctors who are providing professional services.
How to File Form 1099
There are five components of Form 1099: Copies A, B, and C and Copies 1 and 2. You must file Copy A with the IRS and provide Copy B to the independent contractor by January 31. You will keep Copy C for your own records. You must submit Copy 1 to your state taxing authority (if your state requires you to pay income tax) by January 31 in most cases. You must provide the independent contractor with Copy 2 by January 31.
Most businesses file Form 1099 electronically, and you must file it electronically if you need to file 250 forms or more. However, you must provide the independent contractor with a paper copy of the form unless they agree otherwise. If you need more time to file Form 1099, you can submit Form 8809 to the IRS, which will give you an automatic 30-day extension. You must submit this form by January 31. It applies only to submissions to the IRS and does not give you an extension with regard to providing copies of the form to the independent contractor.