For small business owners, hiring an independent contractor has many advantages. From access to specialized project skills to reduced onboarding time, it’s a strategic way to increase your efficiency and productivity — without adding to your headcount.
Like every worker, they’re compensated. And any independent contractor earning $600 or more should typically receive a 1099 form from your business come tax time.
Sending out 1099s is an important tax-related obligation. Failure to do so can mean significant penalties. Here are some reminders to stay on top of the task:
Collect essential information. Request W-9 forms from your contractors at the start of every engagement to obtain the following:
- Full legal or business name
- Mailing address
- Taxpayer identification number (TIN), Social Security number or Employer identification number
Fill out the correct form at tax time. Form 1099-NEC (Non-employee compensation) is most commonly used for independent contractors, but a 1099-MISC, for example, may be used for specific types of payments.
Double check for accuracy. Complete 1099 forms accurately, including a contractor’s name, address, TIN and the total amount earned during the year, as well as your business’s name, address and TIN. Any errors or discrepancies can lead to delays in processing and potential fines, so allow ample time to review and address any discrepancies.
Provide copies to contractors. Once the forms are ready, distribute them to your contractors and vendors promptly. 1099-NEC forms for the current tax year are due to payees by January 31, 2025. Deadlines for different 1099-MISC forms may vary from late January to mid-February.
File with the IRS. Paper and e-filing due dates are typically at the end of February for paper filings and the end of March for electronic filings. Check IRS guidelines for exact due dates, as they can change. Current deadlines are as follows:
- 1099-NEC paper and e-filing – January 31, 2025
- 1099-MISC paper filing – February 28, 2025
- 1099-MISC e-filing — March 31, 2025
Keep careful records. There’s always the possibility of an IRS audit, so be sure to maintain copies of all 1099 forms, as well as supporting documentation and payments, for a minimum of four years.
Consequences of 1099 noncompliance
Remember, tax laws, requirements and deadlines can always change, so it’s crucial to stay in the know.
If you have any questions or need assistance, don’t hesitate to reach out to the tax experts at Magone & Company. Together, we can ensure that your small business remains in good standing with the IRS. Give us a call today at (973) 301-2300.