Who did you pay this year?

How to file a Form 1099-MISC in 2016?

Independent contractors, babysitters, construction crew, or anyone that you’ve made a payment or payments totaling $600.00 or more.

We are 15 workdays from February 1st, 2016 — deadline for you to mail out 1099 copies to your vendors. Let’s get this knocked out real quick!

So, I just paid someone $600 or more, what do I need?

First, you need to get a certified Form W-9 from the person you’ve paid. This means you need to get a signed, dated, and all-required-fields-filled-out copy of that form from that person. The IRS expects you to either get it (“solicit” is the term) via in-person, by mail, by fax, or by e-mail.

You must inform the person that he/she has to return this to you within 60 calendar days and with accurate information, or there would be a possibility of a civil and criminal penalty from the IRS.

If you do not receive the certified Form W-9 within 60 days from the recipient, then you must begin backup withholding — which means you must withhold 28% of their pay, until a valid, certified Form W-9 is produced to you.

This is what a W-9 looks like. Notice it prints “Give Form to requester. Do not send to IRS.” This means you keep the copy in your files, IRS does not need a copy unless requested.

Form 1099 MISC — Copy A. You send this copy to the IRS (note, this has to be printed on machine-readable paper. Alternatively, consider e-File.)

After you receive a certified Form W-9, then you can begin filling out the 1099-MISC itself. The red form you see to the left is the Copy A. If you paper-file, you must print this copy on a machine readable form. This means you have to either (a) request copies from the IRS and wait for a few weeks in the mail or (b) purchase a bulk minimum of 20 at local office supply store. Most people today, including myself, would recommend e-Filing — it’s cheaper, faster, and in most cases, easier. At any rate, this is what to put in the blanks:

  1. Payer’s information — This is where you fill out the payer’s contact information. The payer is the person or entity paying the recipient. For example, if Joe paid John $600 to help me with my stocks, then I would put Joe’s information here. It would look something like this:
Joe Zane
320 N Rollston Ave
Fayetteville, AR 72701
United States of America
(479) 100-0001

2. Payer’s federal ID — The federal ID can be either a social security number or an employer identification number.

3. Recipient’s identification number — You would need to put the recipient’s social security number or their employer identification number. Usually this number is what they reported on the W-9.

4. Recipient’s information — Similar to step 1, you put contact information, but this time for the recipient. Make sure it’s current.

5. Account number — Most e-Filers automatically designate a number in this field for you; but if you are paper-filing, here’s what IRS requires in this field:

The account number is required if you have multiple accounts for a recipient for whom you are filing more than one Form 1099-MISC. The account number is also required if you check the “FATCA filing requirement” box. Additionally, the IRS encourages you to designate an account number for all Forms 1099-MISC that you file. See part L in the 2016 General Instructions for Certain Information Returns.

6. Other income — Enter in the amount you’ve paid in Box 3 if your payment doesn’t fit the description of any of the other boxes.

7. Non-employee Compensation — This is the most common box used to enter the amount paid to a contractor. Here’s what the IRS says about this field:

Enter nonemployee compensation of $600 or more. Include fees, commissions, prizes and awards for services performed as a nonemployee, other forms of compensation for services performed for your trade or business by an individual who is not your employee, and fish purchases for cash. Include oil and gas payments for a working interest, whether or not services are performed. Also include expenses incurred for the use of an entertainment facility that you treat as compensation to a nonemployee.

8. State Tax Withheld — Fields 16 thru 18 are not required for the IRS, however if the payer’s or recipient’s states require a copy of the 1099 MISC, then use this box to report any state taxes withheld.

9. State/Payer’s state no. — If state reporting is required, use this box to provide the payer’s tax ID for the corresponding state.

10. State Income — Report any state income here.

1099-MISC Copy B for Recipient sample. Courtesy of Tax1099.com

Form 1096 (for paper-file only)

Sample Form 1096, only required if you paper file.

The IRS requires the Form 1096 to be sent together with your 1099 MISC filing only if you paper file. Do not send this to the IRS if you e-File, IRS doesn’t need it. Use the above sample form as a guide. Should be pretty straight forward. Note, only one 1096 per filer (payer).

State Filing Requirements

Most states are part of the CFS (Combined Federal State) program, and IRS will automatically take care of the state filing requirement for these states. Here’s a partial list of the CFS states:

  • Alabama
  • Arizona
  • Arkansas
  • California
  • Colorado
  • Connecticut

To see the full list, click here. If the recipient’s state is not listed in the CFS program, then you must contact that state’s department of revenue and taxation to verify the state filing requirements for 1099 forms.

Important Deadlines

February 1st, 2016 — Last day to deliver recipient copies. If by mail, the copies have to be postmarked by this date. You can still send copies after this date, but it will be considered late and subject to IRS penalties.

February 29th, 2016 — Last day to paper-file 1099 (with 1096) or any other types of informational returns to the IRS. If you missed this deadline, we suggest you immediately e-File.

March 31st, 2016 — Last day to e-File 1099 or any other types of informational returns to the IRS. You basically get a month extra with the e-File route. Also with e-File, don’t send the 1096, IRS doesn’t need it. One less paperwork for you.

Various Penalties

IRS is pretty serious about getting accurate and timely filings of the 1099 forms. This year, they’ve increased the penalties. Here’s what they are, starting with tax year 2015:

Courtesy of the National Law Review

That’s it! Good luck doing your 1099 forms this year. Comment or message me if you have any questions.