What is a 1099 form? A guide for companies with US contractors

Are you a business that makes payments to freelancers, gig workers, or other self-employed individuals on a contract basis?

If you hire contractors in the United States, you need to understand your local taxation obligations and the relevant forms involved, including 1099 tax forms, such as the 1099-NEC form and the 1090-MISC form. These types of 1099s are an integral part of your filing requirements and tax liabilities.

If you don’t file the proper forms on time and declare the non-wage income you’re paying contractors, you put your business at risk of fines and penalties.

In this article, you’ll learn what a Form 1099 is and how to file non-employee income so that your business remains compliant with the Internal Revenue Service (IRS) during tax season.

What is Form 1099?

The 1099 is a form businesses use to report payments made to any non-employees they have on their payroll (such as stateside contractors or remote workers overseas) to the IRS.

This form is only for US workers: for example, you won’t need a 1099 for a UK employee working in China, but you would need it for an American contractor located in China.

As a payer, you’ll have to fill out the reporting form with all the relevant information regarding the payments you’ve made throughout the tax year.

What’s the difference between Form 1099-MISC and Form 1099-NEC?

Until 2020, Form 1099-MISC was used to report payments, including various types of income paid to contractors, freelancers, and individuals for services rendered. However, differing due dates created loopholes for bad actors to abuse the system.

As of 2021, the IRS re-instated the use of 1099-NEC forms to report all payments made to non-employee any individual taxpayer for services rendered.

Here are the main differences between these tax documents:

1099-MISC form

The 1099-MISC is no longer used to report payments to contractors. Instead, it is used to report other types of taxable income, such as:

• Rental income

• Prizes and awards

• Other income payments

• Medical and health care payments

1099-NEC form

Businesses, individuals, and payroll departments should use Form 1099-NEC to report non-employee compensation for services rendered. These non-employees could include contractors, freelancers, and other taxpayers.

How do I get a 1099 form?

You can easily download blank 1099 forms from the IRS website. You can also order physical copies from the IRS itself. Here’s the IRS page for ordering tax forms online.

Contractors don’t have to worry about downloading Form 1099 themselves. They can expect their payee to send the form to them so they can complete it.

United States —

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How to complete Form 1099 in 4 steps

Completing Form 1099 is a fairly straightforward process. Follow these simple steps to fill it out correctly before filing it with the IRS:

Step 1: Fill out separate Form 1099s with the name, address, and total amount paid to each contractor

Ask each of your self-employed taxpayers to provide you with their Form W-9. You’ll need this information to fill out some of the elements on Form 1099. Fill out the following information on the 1099:

• Your name, address, and phone number

• The legal name of your contractor

• Your contractor’s business name

• Your contractor’s personal address

• Your contractor’s Social Security number or Taxpayer Identification Number

• How you paid your contractor throughout the tax year

Step 2: File Copy A with the IRS

Copy A of Form 1099 must be sent to the IRS. Make sure to complete this step by the deadline.

You’ll also need to send Copy 1 to the relevant state’s Department of Revenue.

Step 3: Send Copy B to the independent contractor

Next, you’ll need to make sure that your contractor receives Copy B. The contractor will need this form to file their taxes.

Step 4: Keep Copy C for yourself

You’ll need to keep Copy C of Form 1099 for your business records. The document keeps track of your wage expense — important information you’ll need for your company tax return.

What is the filing deadline for Form 1099?

The deadline for filing Form 1099 with the IRS is January 31st of each tax year. If the deadline happens to fall on a weekend for that year, then the deadline will be on the following Monday.

What are the penalties for not filing Form 1099?

The penalties for not filing Form 1099 for your contractors by its deadline are as follows:

• Up to 30 days late after the deadline: $60

• 31 days late through August 1st after the deadline: $120

• After August 1st or not filed after the deadline: $310

• Intentional disregard: $630

Remote creates 1099 forms so you don't forget

Creating and distributing 1099 forms are an critical aspect of managing contractor payments. If you pay US contractors or freelancers, maintaining US tax compliance can be tricky and these 1099 form obligations can slip through the cracks.

Remote Contractor Management handles this compliance work for you.

Remote automatically pre-fills 1099-NEC forms for US-based companies with eligible US-based contractors at the beginning of January and sends an email notification to company admins when the forms are available in the platform.

All you have to do is distribute them to your contractors through Remote in just a few steps: 

1. Preview the form (this is generated based on your contractor payments in Remote)

2. Edit total compensation if you made payments outside Remote in the last year 

3. Send a finalized PDF to your contractors - one-by-one, or in bulk

We’ll also keep you and your contractors informed with any required action items, like verifying tax details, to reviewing or receiving 1099-NEC forms when available. 

US tax compliance can be that easy when you use Remote Contractor Management!

Stay compliant when hiring contractors

Filing Form 1099 might seem like a small detail, but you must not overlook it if you want to stay compliant and avoid penalties when paying independent contractors that pay their taxes in the US.

In need of assistance managing your overseas payroll? Remote can help save you time and give you peace of mind. Our platform allows you to manage all the forms required for tax compliance in one place and automate the entire payroll process.

It only takes a couple of minutes to onboard a new contractor to your business with our platform. Get started today by setting up an account.