The number of freelancers continues to grow as the economy changes. In 2014, one in three American workers was a freelancer. By 2020, 40 percent of workers will be freelancers.
For employers, it means they’re increasingly likely to hire independent contractors. That means they must know how to issue a 1099.
A 1099 is a critical document for both freelancers and the people they work for. If you pay an independent contractor $600 or more in a calendar year, then you must create a 1099 for them.
Keep reading for all the basics of how to send a 1099.
Who Gets a 1099?
First, you need to know that there’s more than one type of 1099. A 1099-C is for canceled or forgiven debts. A 1099-G is for things like unemployment benefits.
But if you’re hiring contractors, you need to focus on the 1099-MISC. Yes, that stands for miscellaneous. It’s used to pay “non-employee compensation.”
How do you know if you have an employee or not? If you’re paying them on a per-project basis, that’s a pretty good sign. And when you pay an independent contractor, you don’t take out taxes.
Self-employed people have to calculate and pay their own taxes. They also don’t get insurance from their employer, because they don’t have a single employer they work for on a full-time basis. Instead, they must find insurance elsewhere.
Taxes aren’t due until April, but as a business owner, you must send a 1099 by January 31.
How to Issue a 1099
If you’re not sure how to issue a 1099, don’t worry. You can find a 1099 employee form online.
Once you do that, you’ll need to be sure and fill it out properly. For your business, you should include your business name, address, phone number, and employee identification number.
You’ll also need the address of the person you’re paying. If you don’t already have their Social Security number, you need to ask for it.
But be careful how you do that. In general, you shouldn’t ask someone to send their Social Security number over email. Making a call and asking is more secure.
Finally, you’ll need the amount you paid the freelancer for the previous year. That should be easy to do, though, since any responsible business person will keep a record of every payment they make.
Make life easier for your freelancers by giving them their 1099s within the first couple of weeks of January. That way, they don’t have to beg you for it in March or April.
You should also file Form 1096 with the IRS. This lets the agency how many 1099s you issued. It also tells the IRS the total amount of money you paid to freelancers in the last tax year.
What if you don’t report all your 1099s to the IRS? In that case, you can get penalized up to $100 for each unfiled form. The same $100 penalty applies if you don’t issue 1099s to independent contractors.
What You Owe Independent Contractors
Hiring freelancers costs you less, but you still owe them certain things. You should pay them a fair wage, and also report that wage properly by knowing how to issue a 1099.
For more business tips, bookmark our blog. We’ve got everything you need to run a successful company.
Leave a Reply