1099s: Everything You Need to Know

What the heck is a 1099 and do you need to file one? Essentially it’s a form you fill out and send into the IRS (as well as the contractor you hired) to report their earnings. If you’re an employee of a company, you get a W2. They file it to the IRS, and you get a copy for when you file your taxes. Well for freelancers or someone with a side business, you don’t have that. That’s where 1099’s come in.

What is it?

A 1099 NEC (NonEmployee Compensation) is one of the most common forms out there that you’ll encounter as an entrepreneur. Essentially what it does is report when you hire independent contractors or freelancers. Some examples would be if you hire a second shooter for your photography biz, you hire someone to build out your website, a copywriter, etc. Most of the time it’s any service-based business. The IRS does require you to report those earnings.

Do I need to file it?

Here are the questions to ask to know if you need to file a 1099 or not. Have I paid any contractor more than $600 total in a year? This is where having your books up to date is going to be the best thing that ever happened to you. Pull reports and see those numbers instead of searching through statements and adding them up.

If you have paid someone over $600, are they a US citizen? Filing a 1099 doesn’t apply if they’re not US citizens. Are they a C Corp or S Corp?  If the answer is yes, they also don’t need 1099s. Finally, How have I paid them? If you’ve paid via cash, check, or bank transfer, you DO need to file a 1099 NEC.

Here’s a hot tip: Pay your contractors in a way that won’t require you to file a 1099. If you pay through Stripe, PayPal goods and services, credit card, Square, or Venmo goods and services (I don’t recommend Venmo, but it happens), the contractor will take care of the 1099 for you. You can also use a service like Gusto and pay contractors through there - you won’t need to worry about filing a 1099.

When are they Due & How do I File?

They’re due January 31st, not tax day. That gives everyone involved time to file. If you file late, there are penalties and fees, so be aware of that. One tip is that as soon as you hire a freelancer or independent contractor, have them fill out a W9 as part of the onboarding process. That way you have the business name, address, EIN or SSN all ready for when it’s time to file.

Track1099 is the best way we’ve found to file. They actually file the 1099 to IRS and email it to your contractor. Through Track1099 you can also request that W9. You can e-deliver (give them a heads up that their tax forms are coming via email so they don’t miss it) or send via mail.

To make filing easier, get your bookkeeping up to date now! Budget, plan, get everything together this time of year so you don’t have to stress about it next year. Head over to the MARKETPLACE to get our Budget Template (if you don’t like the budget, think PROJECTIONS) to help you plan and prepare for the new year. It pairs well with our DIY Money Manager template or whatever bookkeeping software you already use. Reach out if you have any questions!