Essential tips regarding 1099 misc form for independent contractors

Manpower is an essential resource for any business. Without effective manpower, a company can’t operate effectively. There are 2 types of categories that individuals can be classified when we associate them with a company. First, there are employees of the company who work for a fixed annual package, have certain rules and regulations to follow, work hours fixed for them and etc. On the other hand, there are people who are working for the company but not as employees, but as people hired by the firms on contract basis. In short, individuals hired on contract basis are self employed and work for the company for a certain time period and are not bound by any rules and work on their own flexible timing. Example could be – advocators, artists, designers, writers or any other freelancers.

When a business hires the services of independent contractors, they also have to track the payments given to them in order to report the payments on 1099 misc form. Now, if there are hundreds of independent contractors hired, it can certainly turn out to be a nightmare, if you have to individually file each 1099 form and mail it to the recipient. Imagine how much cost you will incur and the amount of time wasted. Now, there is a way out for that which I will come back to later.

Now, let’s discuss some essential pointers that you should keep in mind beforefiling 1099 misc forms:

1099 misc form is required for self employed and independent contractors
If you hired services of an independent contractor and paid them for their services $600 and more during the year 2011, then it is mandatory that you provide them 1099 misc form by the due date which is January 31st 2012.

Form 1099 misc is to be provided to individuals who are self employed and not to individuals who are registered as a corporation. The only way to know if a service provider is a corporation is to have them complete IRS Form W-9, Request for Taxpayer Identification Number and Certification.

Form 1099 misc is not required if businesses pay electronically
If you paid your contractors not by cash but through electronic payment method, say credit card, pay pal, gift card, etc, in that case, there is no need for you to file a 1099 misc form. The bank or credit card company that made the payment on your behalf will send the contractor Form1099-K.

TIN truncation pilot program extended through 2012.
The IRS is extending the Taxpayer Identification Number (TIN) truncation pilot program through 2012 for 1099s that are filed in 2012 and 2013. Payees’ TINs may be truncated on their paper copies but forms filed with the IRS must contain their full TINs. Under the truncation procedure, the first five digits are replaced with either asterisks or Xs: ***-**-1234 or XXX-XX-1234.

Unsure about issuing 1099 misc form. 

If you are not sure if you are required to send 1099 misc form to your contractors, no worries go ahead and send one. There is no harm in sending extra 1099 forms. But if you are required to send 1099 misc forms and do not do so, then no one can save you from incurring penalties.

Send 1099 forms by the due date
Besides sending 1099misc forms to your contractors, you also have to file a copy with the IRS. If you plan to mail the 1099 copies then make sure you do so by Feb 28th. If you want to efile 1099 misc, then the due date is April 2nd 2012.

Now, as we said earlier, it can turn out to be a nightmare if you have to file hundreds of 1099 misc forms. Hence, to safeguard your pocket and your time, the best option would be to electronically file 1099 forms. Preferably you can select a service provider who will do your 1099 form filing. However, before selecting or zeroing on a service provider, it is essential that you understand certain requisites.

• The efile service provider should be IRS authorized and approved
• Efile service provider should have customer support service via email, phone and live chat.
• Efile service provider should provide secure portal for efiling 1099 forms
• Efile service provider should be cost effective

Tax1099.com is the first efile service provider which fulfills all the above requirements. At tax1099.com you can complete your 1099 online filing in a quick, easy and secure manner. Tax1099.com supports expertise customer support service and offers tele-efile service for your 1099 form filing.

Simple and quick process to file form 1099 misc for contract worker

If you are a small business owner and have hired the services of independent contractors/freelancers and paid them $600 and above as remuneration for their services, then there is no doubt that you have to file informational return form 1099 Misc. For each contractor that you hire and pay $600 and above, you have to file form 1099 misc.

Do not prepare a 1099-MISC for a worker who is your employee. This form is for non-employee compensation. You need to be aware of the rules distinguishing an employee from a non-employee. You have obligations to an employee that you must meet and that the IRS takes very seriously. Business owners will have to issue form W2 to employees for their income tax return.

Now, there are 2 processes to file form 1099 misc. One process is the paper filing method and the other method is the electronic filing method. Let’s discuss in details the steps to file form 1099 misc for each method.

PAPER FILING PROCESS TO FILE FORM 1099 MISC

•  Determine you paid $600 or more to a contract worker during the tax year. Include only payments made in the course of your trade or business; personal payments are not included. Include payments made directly to the worker for parts and materials.
  
• Obtain form 1099-MISC. You can get the form from the nearest IRS office or from the IRS website. The form is titled "Miscellaneous Income."
  
• Write your business Employer Identification Number (EIN) or your Social Security number as the payer's federal identification number.
  
• Write the worker's Social Security number as the recipient's identification number.
  
• Write the amount of money you paid to the independent contract worker in box 7, titled "Non-employee compensation."
  
• Write any federal or state income tax withholding you have done for the worker inbox 4 or 11. It is unlikely you have withheld income tax for the worker.
  
• Fill in your name, address and phone number or that of your business.
  
• Fill in the worker's name and address.
  
• Write your state in box 12. Two-letter state abbreviations are preferred.
  
• Give or mail copy B and copy 2 of the 1099-MISC to the worker no later than January 31 of the year following the one during which the payments were made to the worker.
  
• Send copy 1 to the tax revenue department of the worker's home state by February 28. This is not necessary if that state has no state income tax.
  
• Send copy A to the IRS along with form 1096 by February 28.
  
• Retain copy C in your records.

Form 1096 is a summary of the information returns you are sending the IRS. Use only one form 1096 for all of your 1099-MISCs. You will need to include your name, address and phone number; your EIN or Social Security number; the total number of 1099-MISCs you are filing; the total of any federal income taxes you withheld for contract workers; and the total amount you paid to contract workers. Check the box titled "1099-MISC."

ELECTRONIC FILING PROCESS TO FILE FORM 1099 MISC

• Register with the service provider whom you have selected for your 1099 misc filing
• Select the form, fill your information
• Submit to IRS (1099 misc filing due date for efile is April 2nd 2012)

Now, that we have mentioned the filing process for both the methods, which one do you think is easy? Obviously, the electronic filing method, which is easier, quick and secure compared to paper filing. However, before selecting a service provider there is certain things that you have to make sure of. First, make sure the service provider you are selecting is certified and authorized by the IRS to efile 1099 misc returns. Second, the service provider should not be expensive but reasonably affordable and last, they should have a customer support system so that anytime you need assistance they are there to help you out. One such service provider who fulfills all the above requisites is tax1099.com.

Tax1099.com is an IRS certified efile provider who offers quick and efficient efiling service for your 1099 forms for price as low as $0.55 per recipient. At tax1099.com customers can enjoy the benefits of various free services and efiling of 1099 forms in an effortless manner. Tax1099.com also supports 24/7 help center for customers to provide them assistance during their filing as and when required by them. Customers can get in touch with tax1099.com via e-mail, live chat or phone.

Simple and easy way to report informational returns (file form 1099 misc)

Any business or employer who hires independent contractors must file federal information tax returns for any contractors who are paid more than $600 annually. The Form 1099-MISC is the Internal Revenue Service document for reporting the income to the IRS and the contractor. If the employer fails to forward 1099 misc form to the Internal revenue service, the IRS may impose a penalty for failure to report the payments. If you are an employer, you must bear the burden of failure to file the 1099 form or any other error or omission of details on the form.

In order to prevent any error from happening during your filing of form 1099 misc, it is always better for you to be prepared with the information required to file 1099 misc. Now, let’s take a look at some simple and easy ways to report informational return on 1099 misc forms.

1.       Collect business financial records prepared during the year to provide accurate information to the internal revenue service (IRS) within the time allowed. If you find it necessary, you can also hire an assistant to help you with the bookkeeping. That ways you can save yourself from giving inaccurate information and hence prevent unnecessary penalties and expenses.

2.       Prepare the 1099-MISC forms immediately after the end of the calendar year. If you have less than 250 1099 misc forms to prepare then you can file on paper. But it is always advised that you should file your taxes electronically as it is an easy, secure and quick method to file your returns, also recommended by IRS. The filing due date for 1099 misc in 2012 is Feb. 28 for paper filing, but April 2, 2012 if you are filing electronically.

3.       Review the forms for accuracy and have someone else review them. Penalties apply for errors and omissions as well as failure to file. Hence, we recommend you file form 1099 misc through an authorized e file service provider who will check/review your forms for accuracy and if you commit any error or mistake, allow you to re-file without any extra expense or penalties. One such IRS certified e file provider to file 1099 form is tax1099.com.

4.        It is very important that you file the forms before the due date set by the IRS. If you do not get the forms filed on time, then make sure you file them as soon as you can. Or you can also get the time to file your 1099 extended.

 Employer penalties depend on when the employer files the Form 1099-MISC with the IRS. If the employer completes the form within 30 days of the 1099 due date, the penalty is $30 for each information form not completed. The maximum penalty is $75,000 for a small business or $250,000 for other businesses. If the employer completes the form within 60 days of the due date but before August. 1, the penalty is $60 for each information return not completed. The maximum penalty is $200,000 for a small business or $500,000 for other businesses. If the employer delays until after Aug. 1, the penalty is $100 for each information return, up to $500,000 for small businesses or $1.5 million for other businesses.

5.       If you can show reasonable cause and not willful neglect, you may fit into an exception from 1099 penalties. The event must be beyond your control or have significant mitigating factors. If you can show that you acted in a responsible manner, you may avoid penalties. You may get a break on penalties if you filed the Form 1099s and failed to include information or included incorrect information but made corrections before Aug. 1.

What is form 1099 K and its filing requirements

Any difference between taxes paid and taxes owed gives rise to ‘tax gap’ which gives rise to difference between income that is taxable and income that is too reported.

It has been estimated that more than $400 billion taxes/year go uncollected. Previous IRS study showed that business income from small businesses accounted for 25 percent to 30 percent of the tax gap due to under reporting of taxes.

1099 forms are used by to report all the income and informational returns about businesses and their transactions. Example – A form issues 1099 misc to an independent contractor to whom it has paid $2000 for his services to the company.

To overcome the tax gap, government had decided the issue a 1099 form to all businesses small or big, goods or services who does any business or transaction of $600 or more per year.

This 1099 provision was set to begin in 2012, but it was cancelled in April 2011 after a great hue and cry was raised about the burden it placed on small businesses.

However, there is a 1099 provision that has not been revoked. The Housing Assistance Tax Act of 2008 added a provision of the Internal Revenue Code that requires companies that process credit and debit card payments, such as PayPal, to send a new type of 1099 form called 1099-K

1099-K is a form for Merchant Card and Third Party Network Payments. The IRS believes that some small companies do not report all of their credit or debit card revenues or revenues from third-party payments like PayPal. The new 1099-K will be used by the IRS to make sure small businesses will not be able to hide receipts from the IRS.

Until the enactment of the legislation requiring 1099-Ks, the IRS had been taking the word of the business owner that he was reporting all of his income because they did not have access to the credit card revenues of small companies. The only way to check if a company was cheating on its taxes was to do an audit of a particular return which can be time consuming and costly.

The IRS knows that there are hundreds of millions of dollars getting exchanged every year that go unreported. Much of these unreported transactions happen electronically.

The IRS commissioner said, "Beginning in 2012, payment processors will be required to make an annual information report to the merchant and the IRS stating the gross amount paid to the merchant during a calendar year. This will help improve voluntary tax compliance by business taxpayers and help the IRS determine whether their tax returns are correct and complete."

To trigger the reporting requirement, merchants must execute at least 200 transactions in a year that add up to at least $20,000. Payment providers will submit 1099-K forms only for sellers that meet both thresholds.

Taxpayers who have a credit card merchant account, PayPal account or similar account and otherwise meet the criteria will receive form 1099-K from their service providers at the end of the year.

The form 1099-K will report the gross amount paid to the taxpayer without any adjustments to fees, returns or sales tax.

Reconciling the 1099-Ks with the tax returns is going to be a problem. If your company receives debit and credit card payments and is above the reporting threshold, you should prepare for the 1099-K.

However, the effectiveness of 1099-K in succeeding the closing of tax gap is yet to be seen. The group that will be most affected are those who deliberately under- report and receive most or all of their income from cards or online payment portals like paypal.

The 1099-K form might discourage people from selling items on eBay and being paid through PayPal, for example, because they now will receive a 1099-K reporting the payments received.

On the other hand, there are people who vote on behalf of 1099-K saying that it is an unfair advantage to those who are not selling their goods on e-bay and not reporting taxes on their revenue.

However, 1099-K form is not without any disadvantages. It certainly holds a disadvantage of carrying with it a huge amount of paper work and thus huge costs. But if the huge amount of paper work leads to people reporting their incomes correctly, then the trouble is definitely worth it. The aim of the government should be to successfully be able to close the tax gap before they consider any tax increase for the payers.

IRS Issues Proposed Regulations on Reporting Requirement for Payment Card and Third-Party Payment Transactions

WASHINGTON — The Internal Revenue Service today issued proposed regulations under a new statute requiring that, starting with transactions in calendar year 2011, the gross amount of payment card and third-party network transactions be reported annually to participating merchants and the IRS.

The provision was enacted as part of the Housing Assistance Tax Act of 2008 and is designed to improve voluntary tax compliance by business taxpayers and help the IRS determine whether their tax returns are correct and complete.

“Time and time again, we have seen that better information reporting helps the tax system work better by ensuring that everyone pays what they owe,” said IRS Commissioner Doug Shulman. “The new law gives us an important new tool for closing the tax gap and also provides business taxpayers better documentation to compute and report their income and expenses. The IRS will work closely with stakeholder groups to ensure a smooth implementation of this new program."

These proposed regulations, posted today on IRS.gov, propose rules to implement reporting of credit card, debit card and similar transactions, as well as transactions settled through third-party payment networks, such as third-party organizations that settle online transactions. The IRS also released for comment a draft version of new Form 1099K, Merchant Card and Third-Party Payments, which will be used to make these reports.

The new law requires banks and other payment settlement entities to report payment card and third-party network transactions with their participating merchants. The IRS emphasized that individual cardholders are unaffected by this requirement, and none of the cardholder’s personal information will be shared with the IRS.

The IRS has created Form 1099K, which is similar to the existing Forms 1099 used to report interest, dividends and other payments. The first information return covering calendar year 2011 must be filed with the IRS and furnished to participating merchants in early 2012. Among other things, the proposed regulations describe who is required to file a return and which payment card and third-party network transactions are subject to the reporting requirement.

tax1099.com an IRS authorized service provider to efile form 1099 misc and other 1099 forms such as 1099 A, 1099 INT, 1099 DIV, 1099 K, etc will keep you updated with the latest information and news for your business filing. Meanwhile if you have any questions or queries you can contact the IRS office at 1-800-829-4933 or tax1099.com at 410-878-2324

Reference: http://www.irs.gov/irs/article/0,,id=215740,00.html

Changes in tax form 1099 misc reporting requirement from tax year 2012

Earlier, form 1099 misc was used by individual contractors, freelancers, consultants to report any extra income earned by them from a company or an individual who hired them. However from 2012 onwards, the 1099 regulations are drastically going to change as the filing of form 1099 will not only be confined to freelancers and consultants but will also have to be filed by all businesses and business transactions over $600. In short, starting 2011 any business that does more than $600 in business with any vendor will be required to submit a 1099 form. Eg: if a business purchases office furniture worth $1500 from an interior company, then they would have to report the same by filing form 1099 to IRS, something which was not required earlier. Hence, this will drastically increase the paper work cost of businesses, leading to an increase in their variable costs thus an increase in prices of their goods and services to combat the loss.

Furthermore, the vast amount of costly paper work has been introduced by the changed provisions in health reform law. The bill makes two key changes to how 1099s are used. First, it expands their range by using 1099 forms to track payments not only for services but also for goods. Secondly, it requires that 1099s be issued not just to individuals, but also to corporations.

Now, let’s focus on the part of how to prepare yourself for the coming changes in 1099 laws. Firstly, start requesting that each of your vendors, large and small, complete IRS Form W-9 for your records.  This will give you the legal name, address and Tax Identification Number (EIN or SSN) for your vendor.  This is the information that you will need in order to complete a 1099-MISC each January. 

what is tax form 1099 and who is suppose to file 1099 misc?

A 1099-MISC is a type of tax form. It is used to report miscellaneous income, such as income earned as a non-employee, as well as fees, commissions, rents, or royalties paid during the last tax year. Payments for prizes, awards, legal services, and other non-employee activities may also be reported on this form.

If a business pays you 600 US Dollars (USD) or more as a non-employee, it is legally required to report it to the Internal Revenue Service (IRS), using a 1099-MISC form. For royalty income, a 1099-MISC must be generated for $10 USD or more. The payer should also provide one copy of the form to the payee. Once the payee receives it, he should verify the copy once again for errors and keep it securely. The payee will require the copy of 1099 misc to report income on his tax return.

Often, individuals consider non-employee income as additional money. This is predominantly true if the amount comes up to be less than $1000 USD. However, it is important to realize that the IRS does not share the same view and you are required to report all of your income, even if the amount you received was not enough to report it on 1099 misc form. Furthermore, IRS may not appreciate if you omit income from any source; hence make sure you include all your income.

Any business that has paid you $600 USD or more as a non-employee, or at least $10 USD in royalties must provide you with a 1099-MISC form by January 31st of the year following payment. If you are expecting a 1099-MISC and have not received it by January 31st, you must contact the organization that pays you and request a copy from them. You may also contact the IRS to request a copy. However, you will need to verify your identity before the IRS will provide you with a copy of the form.

Sometimes, form 1099 will arrive with errors on it. Hence, to make sure this does not happen, it is always wise to efile 1099 with an IRS authorized e file provider such as tax1099.com in order to keep hefty penalties and late filing fee at bay.