As the new year approaches, tax season is almost here too. We know that getting things wrong on our taxes can lead to penalties and stress, so we’re here to help you navigate the ever-increasing IRS regulations.
Today we’re talking about Independent Contractors. These are non-employees that your business pays. According to the IRS, “The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”
The rules have changed slightly regarding tax forms for your business’s Independent Contractors. Before 2020, your business would issue a 1099-MISC for independent contractors, but now the IRS has reintroduced a new form, the 1099-NEC, for most independent contractors.
The 1099-NEC (“non-employee compensation”) is used to report payments of $600 or more to non-employees. These payments were formerly reported on a 1099-MISC, Box 7. Both copies (one to the IRS and one to the recipient) are due February 1st.
Remember, just because an IC’s business card says “company” does not mean the IC is a corporation. For example, say that a limo driver who has a full-time job at ABC Inc. makes runs for your firm in his free time as a sole proprietor. His business card may say ABC Inc., but if he works for your company as a sole proprietor, send a 1099-NEC. It’s a good idea to request a W-9 anytime you are unsure.
The 1099-MISC is now used to report a variety of miscellaneous distributions to individuals, including payments for rent, prizes and awards. You must file a 1099-MISC for any nonemployee to whom your firm paid at least $600 during the year in:
prizes and awards (e.g., to a customer who won your company’s raffle or won a prize at your firm’s grand opening), or trips (e.g., to honor a retiree)
other income payments
medical and health care payments
payments to an attorney for legal services (reported in Box 14)
dividends of $10 or more for the year
Copy A of the 1099-MISC is due to the IRS by February 28th (paper copy) or by March 31st (electronic copy).
Copy B is due by February 15th (paper or electronic).
Be sure to get the details correct on your 1099s. Penalties could be issued for incorrect information, missing information, late submission, etc.
We’ll Save You Time and Stress
We know that new regulations can be daunting and difficult to navigate. That’s why we’re here. We’ll help get your tax forms ready to go as well as connect you with a tax professional if you need some serious help with your taxes. Contact us today to get your first month of services free!
Please note: JRB will be processing 1099’s starting 1/17/2022 and through 1/28/2022. Please contact our office for information on the information needed for you to successfully file your 1099’s on time!
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