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For many freelancers, independent contractors, and small business owners, tax forms like the 1099 and W-9 can be sources of confusion and uncertainty. Understanding these forms is crucial for maintaining compliance with tax regulations and, with 1099 filing season just around the corner, it's a good idea to take a peek at your vendor info now, so everything's smooth sailing come January.
Let's dive into what you need to know beforehand.
What is a 1099 Form?
A 1099 form is an IRS document used to report different types of income—excluding regular salary, wages, or tips—for each individual you've paid during the calendar year in the course of your business.
The two common 1099 forms that businesses are required to file are:
1099 MISC (Miscellaneous): This form is used to report payments of $600 or more for services rendered, such as rent, payments to attorneys, prizes and awards, other income, medical and health payments, legal settlements, crop insurance proceeds, and fish boating proceeds.
1099 MISC (Miscellaneous) is also used to report royalties of at least $10 and any amount of Section 409A deferrals and non-qualified deferred compensation plans (NQDCs)
1099-NEC (Non-employee Compensation). This form reports payments of at least $600 or more for fees, commissions, prizes and awards for services performed as a non-employee, and other forms of compensation for services performed for your trade or business by an individual who is not your employee.
The IRS has rules to decide if a worker is an employee or an independent contractor. For further information on classifying your workers refer to the IRS Employer's Tax Guide.
Other 1099s, (typically not issued by small businesses) include:
1099-INT: Issued by financial institutions to report interest income of at least $10.
1099-DIV: This form reports dividends paid of at least $10
1099-G: Typically issued by government agencies, this form reports payments such as unemployment compensation, tax refunds, or state and local income tax refunds.
1099-R: This form is used to report distributions from pensions, annuities, retirement plans, or insurance contracts.
For recipients of a 1099, it's important to note that this income is usually not subject to tax withholding, meaning you may need to set aside funds to cover your tax liability.
What is a W-9?
On the flip side, a W-9 form is not about reporting income but is instead used to collect information.
A W-9 form, an Internal Revenue Services (IRS) form, is used as a formal written request to confirm a person’s name, address, and Taxpayer Identification Number (TIN) for an individual or business receiving income from you. That TIN? It might be a Social Security Number (SSN) or an Employer Identification Number (EIN).
The information taken from a W-9 form is used to generate a 1099 tax form, which is required for income tax filing purposes.
The information collected by an entity on a W-9 form cannot be disclosed for any other purpose, under strict privacy regulations.
Independent contractors who work with companies they are not employed with must often provide that company a W-9.
Optional information: vendor's email address if using a third-party application to E-file the forms.
The W-9 differs from a W-4 Form—which is more commonly supplied by employees to direct employers—in that the W-9 does not inherently arrange for the withholding of any taxes due.
Who Should Give Me a W9?
Is it best practice to obtain a a W-9 from vendors and independent contractors in any business relationship where you are the payor. The best time to ask for a completed W-9 form is while on-boarding a new vendor.
As a small business owner, you must file a 1099 for every vendor, service provider, freelancer, independent contractor, self-employed person or non-incorporated business that you’ve paid more than $600 during the tax year.
This includes business entities that are limited liability companies (LLCs), partnerships or sole proprietorships but excludes C or S corporations. You should also file a 1099 if you rent a space from anyone who isn’t a property manager.
While generally, payments to a corporation (including a LLC that is treated as a C or S corporation) do not have to be reported on Form-1099 misc, it is advisable to obtain the company's W9 form.
How to Track Vendor W9 Info in Your Accounting System?
Many accounting systems allow you to track 1099 payments to vendors in the Vendor Profile section, streamlining year-end tax filings. Consult your software provider for guidance on the steps to take for monitoring these payments.
If you are a QuickBooks Online user, you can easily set up the system to track payments for 1099 processing in the Vendor Profile section. If you know the contractor’s Employer Identification Number (EIN), at the bottom of the screen, enter it on the Business ID No. line. You can add this number later; just remember to do so before it’s time to file. Check the box that says, “Track payments for 1099” and QuickBooks will add the independent contractor to the tax filing module:
There are others way of tracking as well via workflow tools such as:
Bill.com or Melio – third party cloud-based application where bills are processed and paid and documents are stored and synced to accounting.
Payroll Service – include payouts as part of your payroll processing, thus all the vendor info (name, address and Federal ID #s).
These tools will help you streamline your internal processes and provide the stored data needed to process the required year-end tax forms.
Got It- Now How Do I File a 1099 Form?
The best and easiest way to complete and E-file a 1099 form is through your payroll or accounting system, such as Quickbooks Online (How to Efile 1099s in Quickbooks Online)
Other Methods include:
Manually fill out, complete, and mail 1099 forms
Unfortunately, you can’t just print the paper forms off the internet—you need to get official 1099 forms from an official source:
IRS: Order 1099s and other information returns/forms straight from the IRS, either by purchasing from the website or by calling 1-800-TAX-FORM (1-800-829-3676).
From an office supply store like Staples.
Online E-File providers
There are many online software providers that make it easy to input and E-File 1099 forms. A few options include:
Note: The IRS has developed IRIS (Information Reporting Intake System), an online portal that allows taxpayers to e-file their information returns. You will need an EIN and a Transmitter Control Code (TCC) to use IRIS. Now is the time to apply for a TCC, as it may take up to 45 days to process the application. If you must file electronically but fail to do so and do not have an approved waiver, you may be penalized for failure to file electronically. The maximum penalty for most of the information returns is $310 per return.
Tax Filing Deadlines and Other Important Notes
New to 2023
Starting the tax year 2023, if you have ten or more information returns to file in aggregate, you must file them electronically.
Corrections to forms 1099 must be done in the same form they were initially filed. If your third-party vendor filed form 1099 electronically, you can no longer send a paper correction; the correction must be done electronically.
1099 Reporting Deadlines
2023 1099-MISC, 1099-INT, 1099-DIV
Recipient copies January 31, 2024
Paper filing February 28, 2024
E-filing April 1, 2024
2023 1099-NEC Deadlines
Recipient copies January 31, 2024
Paper filing January 31, 2024
E-filing January 31, 2024
An extension of time to furnish statements to recipients may be requested by fax. Your request must be received no later than the date the statements are due to the recipients. If your request for an extension is approved, generally, you will be granted a maximum of 30 extra days to furnish the recipient’s statements. Failure to file a correct information return results in a penalty of at least $630 per information return with no maximum penalty.
In Summary
The 1099 and W-9 are interconnected components of the tax process for freelancers, independent contractors, and businesses engaging in transactions with them.
Now is the time to review vendor files to ensure everything is in order. Requesting vendor information is time-consuming, and you want to allow yourself ample time to reach out and follow up with vendors. January 31st will be here before you know it and after having time off for the holidays the last thing you want to do is add on to all the other year-end information you need to provide.
If you have any questions on how to track your vendor information for your 1099, please reach out to our Fava Group experts.
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