Deadlines for filing 1099s are rapidly approaching. If you’ve been employed by any company, you should be familiar with the W-2 tax form, or the IRS “Wage and Tax Statement.” Employers are required to send one copy of this form to the employee and one to the IRS, reporting wages and the total tax withheld from those wages. If you’ve been freelancing for some time, you’re likely also familiar with another tax form, the 1099-MISC, which you use to report the income (in excess of $600) paid to you by a client.
While this seems pretty straightforward from a worker’s standpoint, if you’re new to employing other people or making payments to vendors or independent contractors in the course of your own freelance business, things get a bit more complex. Here, we’ll lay out some important deadlines for W-2s and 1099s to keep you and your business compliant, and avoid the fees levied on business owners who fail.
January 31, 2019: 1099s and W-2s Are Due
If you employ any staff at all, you’re required to send a copy of Form W-2 to the Social Security Administration by January 31. You must then send Copy B, along with any other copies of the W-2, to your employee(s) by this same date.
If you’ve made payments to a non-employee, you’ll need to file a 1099. One copy must be sent to the IRS by January 31 if you’re reporting non-employee payments. That said, there are a few exceptions:
- If you’re filing on paper and NOT reporting non-employee compensation, the deadline is February 28
- If you’re filing electronically and NOT reporting non-employee compensation, the deadline is March 31
W-2s and 1099s Are Information Returns, But Filing Is Compulsory
The IRS and the Social Security Administration (SSA) use W-2s and 1099s to ensure that payments for taxes and Social Security benefits are made accurately by taxpayers. If you have even one employee, you’re required to provide them with their W-2 by January 31, in addition to filing a copy with the SSA.
If you made a payment to a vendor or independent contractor during 2018, you’ll also need to file a 1099 with the IRS and provide your employee with a copy. We should note that you should NOT file Copy A of returns downloaded from the IRS website — they cannot be scanned properly and you could be charged a fine by the IRS. Instead, use the official printed version available directly from the IRS. The printed versions are free, but they take about 10 days to arrive, so be sure to order them early.
File On Time to Avoid Potentially Steep Fines
In general, the IRS has become more aggressive when it comes to levying fines against both individuals and businesses. Current fines and financial penalties for businesses totalling $5 million or less in gross receipts are as follows:
- 30 or fewer days late: $50 per return with a penalty not to exceed $187,500
- 31 days late to August 1, 2019: $100 per return with a penalty not to exceed $536,000
- After August 1, although not intentionally disregarded: $260 per return, with a penalty not to exceed $1,072,500
- Intentionally disregarded: $530 per return, with no maximum penalty
Additional Payments to Report On Your 1099
If you made any of the following types of payments in the amount of $600 or more, you’ll need to file a 1099 (or the applicable alternate version of the form) with the IRS. You’ll also need to send the appropriate copy to the vendor or contractor whom you paid.
- Independent contractors, or other individuals who are not considered employees of your business
- Prizes, awards, and certain other incentives
- Backup withholding or federal income tax withheld
- Payments to physicians, physicians’ corporations, or other suppliers of health and medical services
- Gross proceeds paid to an attorney
- Dividends or other distributions to a shareholder (Form 1099 DIV)
- Interest on a business debt to someone (this does not include interest on an obligation issued by an individual) (1099-INT)
- Distribution from a profit or retirement plan from an insurance contract or IRA (Form 1099-R)
- Payments to merchants, vendors, or other entities in settlement of reportable payment transactions — that is, things like payment card or third-party transaction networks (Form 1099-K)
Additional Forms of Income to Report On Your 1099
If, on the flip side, you received any of the following types of payments as a self-employed business owner or freelancer, you’ll need to file the appropriate 1099 return:
- The sale or exchange of real estate (Form 1099-S)
- You, acting as a broker, sold a covered security belonging to your customer (Form 1099-B)
- You released someone from a debt secured by property or someone abandoned property that was subject to the debt (Form 1099-A) or, alternatively, otherwise forgave their debt to you (Form 1099-C)
- You carried out direct sales totaling $5,000 or more of consumer products to a buyer for resale anywhere other than a permanent retail establishment (Form 1099-MISC)
Additionally, there are several instances where you are not required to file a Form 1099 that are worth noting:
- You are not engaged in a business or trade
- You are engaged in a business or trade, and the payment was made to another business that is incorporated — though not for medical or legal services
- The total payments made to the person or unincorporated business is less than $600 in a single tax year
Whether Or Not Clients Send 1099s, Freelancers MUST Claim the Income
This is important if you’re a freelancer or otherwise self-employed. While your client is supposed to send you a 1099 if they’ve paid you more than $600 in the same tax year, you must still claim the income on your own tax return based on your accounting records even if they don’t send you the form.
The preparation and filing of 1099s and W-2s are the first signs that tax season is in full swing for independent business owners and freelancers. As January 31 draws closer, make sure you have your records in order and stay ahead of your deadlines to avoid potentially heavy fines and penalties. After you knock out these first steps, keep up your momentum by preparing the remaining forms for your business and individual returns.
How can Neat Help?
Neat is a cloud-based software that helps small business owners, contractors and independents prepare to for taxes. Our app automates many time consuming bookkeeping tasks while providing a secure environment to capture, organize and mange expenses, receipts and other financial documents needed to filed your taxes.