If you are an employer that works with independent contractors, then you have certain tax obligations that you must fulfill as required by the IRS. The following article mentions a few things you should follow when preparing tax form 1099. First, the IRS requirement is that you must send form 1099 to all independent contractors you have paid $ 600 or more in a year. The independent contractor must fill the tax form and send it to the IRS by January 31.
Understanding independent contractors
Lots of people do not understand the term independent contractor and may make mistakes when trying to comply with the IRS. In a nutshell, an independent worker can be defined as temporary worker that offers services in exchange for money under certain conditions subject to the independent worker contract.
Usually, independent workers are renumerated per project and fill taxes on their own. Because of this factor, it is quite cheap to hire independent contractors since they are not technically your employees. Employers must be clear on the issue of independent contractors or employees because any confusion can lead to penalties by the IRS.
Deadline for submitting the 1099 tax form
Independent contractors are supposed to receive tax form 1099 by January. End of February is the deadline that employers meet when sending form 1099. If the deadline is missed, then the employer may be fined around $30 to 100 per form. Firms that submit the wrong information to the IRS stand to be fined $250 or upwards per single form. Depending on the particulars of given matter, the IRS may increase fines.
Tips for organizing Tax Form 1099
Employers must ensure that they have correct information before preparing 1099 tax form for each contractor. It”s critical to ask your independent workers if they have updated any personal info like SSN or EIN. For instance, asking contractors to send updated details including the social security numbers is critical.
Each form must include the amount of money you paid the contractor plus SSN or EIN. Once the forms are ready, you need to send the form to each and every contractor that works for you. But ensure that you keep a copy of the documents you send just to be safe because the IRS may need them. The IRS is body that you should not mess with.
Ultimately, the preparation of 1099 forms for your independent workers can be a tedious process. Though, if you use various tools the process of preparing form 1099 can be much easier. In addition, you can simplify things further by contracting the services of an accountant. If you do everything according to book, then heavy fines may be imposed on you by the IRS.