This time of year there are a lot of questions about 1099 forms. Some people don’t know if they will be getting one (and often hope they don’t) while others don’t know if they should be sending them. So I wanted to give some of the basics here this week.
To start, a 1099 form is essentially a report of money you received that are not wages, salaries, and tips. This can cover a variety of things from interest, dividends, money received from the government to pension or retirement plan payouts. Think of it as the way the IRS gets to know about this money you received that was not payroll. Things like those listed above, though, are usually not surprises.
Things get a little more muddled, however, when it comes to the 1099-NEC form, which is for non-employee compensation. These should be received by anyone who performed freelance work or had a side gig where they earned more than $600. Here is also where we have to say, that you are supposed to still report all income received, even if it’s less than $600 and therefore you did not receive a 1099 form. People are not always aware they will still be taxed on this money, so receiving one can be an unpleasant surprise.
Now, to look at it from the flip side, if you paid people more than $600 during the year, you may be required to send them these 1099 forms. Note this does not apply to payroll. For those payments, taxes were already being computed, so the person will receive a W2 form instead to report that income. This does not need to be reported in another way.
Note that this also does not apply to payments that were made with a debit or credit card. Use the rule that you only should be sending 1099s for payments you made by cash or check. Other forms of payment will be covered by a separate tax form and issuing a 1099 would result in a double reporting of those payments.
Finally, you are also not required to send 1099 forms to government agencies, tax-exempt organizations or corporations (unless the corporation provides legal, medical or health care services).
But then to flip it again, if you are a tax-exempt organization and pay a freelancer more than $600 for some work, then you should be sending them a 1099 form.
So yes, this can feel confusing and the answers can seem different depending on what side you are looking from. This must be done by the end of this month, though, so if you have any questions about it, please get them answered now while there is still time to handle it.
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