1099 Tax Filing Requirements for Contract Workers

Tax filing season is already here. And for individuals, this means that their returns are due by April 15. For businesses, however, certain deadlines are approaching much faster. For example, anyone with employees must send out a W2 (to each employee) by January 31. However, do not forget your contract workers; that is, people who are not on your payroll but to whom you hired to provide a product or perform a service. You must send your contract workers a 1099-MISC by January 31 as well. Tax Laws

When Must I File a 1099-MISC?

There are several circumstances under which you are required to file a 1099-MISC; including:

  1. Paying out at least $600 to an independent contractor (box 7) during the 2014 tax year.
  2. Paying out at least $600 for the services of an attorney (box 14).
  3. Paying out at least $10 in royalties (box 2) or substitute payments in lieu of dividends (box 8).
  4. Any amount of proceeds received from fishing boat operations (box 5).
  5. Direct sales of $5000 or more of consumer products purchased for the purpose of reselling anywhere other than a “permanent retail establishment” (box 9).
  6. Paying out at least $600 or more in the following:
  • Rent (box 1).
  • Medical/healthcare payments (box 6).
  • Prizes/awards (box 3 & 7).
  • Proceeds from crop insurance (box 10).
  • Payments made for fish from fishing businesses (box 7).
  • Payments from a notional principal contract to a partnership, individual or estate (box 7).
  • Other income (box 3).

Form 1099-MISC Due Dates

Recipients must receive their 1099-MISC by January 31 unless they are payments to attorneys or substitute payments in lieu of dividends, in which case the deadline is February 18. The IRS must receive all 1099-MISC forms by February 28.

If you miss these deadlines or fail to send a correct 1099-MISC by these deadlines and are unable to show reasonable cause, you may be incur a penalty. The following circumstances may subject you to a penalty:

  • Failure to send the forms to the recipient(s) on time.
  • Sending a form with incorrect information.
  • Sending a form with incomplete information.
  • Filing paper 1099-MISC forms that are illegible.

Penalties are based on how late you are in sending a form (or a corrected form) to the required recipient:

  • Within 30 Days: $15 per return up to a maximum of $75,000 total for all returns.
  • After 30 Days but Before August 1: $30 per return up to a maximum of $150,000 total for all returns.
  • After August 1: $50 per return up to a maximum of $250,000 total for all returns.

Cumulative penalties may be lower for those classified as small businesses.

Penalties for failing to file by the deadline may not seem like a lot, but if you have several contractors you need to send these out to it can add up quickly. Also, any time you miss a deadline with the IRS, you always invite greater scrutiny on your returns. For this reason, it is essential that you meet your deadlines regardless of the size of the penalty.

If you have questions or are otherwise uncertain about whether or not you are required to file a 1099 MISC for your business, speak with a small business accountant. It is best to ensure that you fully understand your options rather than risking making a mistake that may cost you a penalty.

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