Back in 1789, Benjamin Franklin wrote in a letter that aught in the world is sure -- "except death and taxes."

We recall that's a chip of a grim outlook on the world, just the founding father isn't incorrect. If you work for or operate a business in the United states in order to brand coin, at the terminate of the year, y'all take to start filling out and filing revenue enhancement forms to pay your taxes.

If you're a concern owner who works with independent contractors, or if yous're self-employed as a contractor or freelancer, you're going to need to sympathise the 1099 tax form, which reports on income paid to non-employees. Proceed reading to learn more than nearly the purpose Form 1099s serve, and how to use them correctly to file and pay your taxes.

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What's a 1099 taxation form?

A 1099 tax course is an Internal Revenue Service (IRS) document that reports the various incomes independent contractors or self-employed individuals receive over the course of the previous twelvemonth other than a salary paid by their employer. The person or business organisation who pays them is responsible for reporting payments and remitting a 1099 course to the individual past January 31st of the following year.

Here'due south what a bare 1099 revenue enhancement form looks similar:

Source: IRS

There are a diversity of different 1099 tax forms, with the term referring to any tax certificate that reports on an individual's income other than that paid by their employer in the grade of a regular bacon. This income is reported on in W-2 form at the showtime of the following twelvemonth.

The different types of 1099 tax forms tin include:

Course 1099-MISC: Contained Contractor Income

If you're an independent contractor, freelancer, or self-employed, you will receive a Form 1099-MISC from every business organisation or individual who paid you more than $600 in the previous year.

Form 1099-DIV: Interest and Dividends

If you lot receive involvement or dividends on stock investments or mutual funds, you will receive a Course 1099-MISC that reports on this income. This course is independent of the form you receive from making or losing money by ownership or selling stocks, which is a Form 1099-B.

Form 1099-Grand: Government Payouts

If you receive payments from the state or federal government over the course of the year, commonly in the form of unemployment checks or tax refunds, you will receive a Form 1099-M.

Form 1099-C: Debt Cancellation

If a creditor cancels a portion of your debt that y'all no longer owe, yous will receive a Form 1099-C that reports on that amount as taxable income.

Form 1099-R: Retirement Account Withdrawals

If you withdraw coin from your retirement account prior to officially retiring, that is considered taxable income, and you volition receive a Grade 1099-R will show the amount of the withdrawal that is taxable.

Among the most common recipients of the Grade 1099 are contained contractors or freelancers. With more than 57 meg Americans who reported that they freelanced in 2017, including 50% of millennials, information technology'due south a growing employment trend. In fact, trends guess that the majority of the American workforce volition exist freelancing past 2027. So earlier nosotros go along, let'due south make sure we're all on the same page almost the difference between employees -- whose income is reported using Class W-2s -- and independent contractors, whose income is reported using Course 1099s.

Employees vs. Contained Contractors

The main deviation between employees and independent contractors is in the way their income is paid out past a business. Businesses rent employees, pay them a regular salary, and withhold income tax, Social Security, and Medicare from the payments. Businesses pay independent contractors on a contract-by-contract footing and do non withhold taxes from the payments.

When a business hires an employee, they typically build a contract that establishes salary, benefits, vacation fourth dimension, and if the employment status is at-volition or contract employment. When a business organisation hires an independent contractor, contracts are typically shorter-term and project-based that simply establish timelines.

Next, allow'due south dig into how businesses and individuals should fill out and use 1099 forms.

How to Fill Out a 1099 Form

Businesses owners must submit a Course 1099-MISC at the stop of every year for every independent contractor they fabricated payments of more than $600 to. When you hash out a contract with an independent contractor or freelancer, if y'all know you volition pay them $600 or more over the course of the year, make them fill out a Grade West-nine so you take admission to their Taxpayer Identification Number (Tin) and so you tin fill out and remit them a Class 1099 at the cease of the year for their tax purposes and for your business organisation'. So, you'll have the information needed to fill out a Form 1099.

i. Order Form 1099s.

You need to order specific Form 1099s from the IRS that are readable and scannable. You tin society them online or past phone using the data on the IRS website.

ii. Fill out Form 1099s with tax information of the contractor and your business organization.

Using the information from the Course W-nine the contractor originally filled out and your business concern' own tax information, make full out the Grade 1099 with the contact data and TIN for both the contractor and your business, along with the full amount you lot paid the contractor in Box 7, labeled "Non-employee bounty."

3. File forms with each contained contractor and the IRS.

Transport Copy B of the Class 1099 to the contractor no after than January 31st. Next, file Copy A of the Class 1099 with the IRS no afterwards than March 31st. Finally, go on Re-create C of the Form 1099 for your records. Repeat this procedure for every contained contractor you worked with over the course of the year. If you're not sure which people and businesses you work with qualify as independent contractors, y'all tin can consult this list of guidelines for figuring out how many y'all should fill up out before the deadline.

Now you know how Class 1099s are used to pay and taxation independent contractors and freelancers. To learn more than, read about how to fill out a W-4 form next.

This article does non constitute legal advice. The steps required to fill up out a Class 1099 differ for every person, and so you should seek your ain legal advice and financial counsel to ensure you follow the correct process.

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Originally published Dec 28, 2018 eight:thirty:00 AM, updated September 05 2019