One of the major questions we are asked by entrepreneurs every year is whether or not they need to send out 1099’s to their contractors. If you are unfamiliar, a 1099 is a tax form that a business owner sends out to both their contractors and the IRS each year, letting both parties know how much was paid to them during the previous tax year.
But as with most tax rules, it gets a little complicated because not all contractors need to receive a 1099. So how do you know whether you need to send one to yours or not? Here’s a quick checklist that runs down all the criteria the contractor has to meet in order to require a 1099:
- They were paid at least $600– If you paid them $599 or less for the year, no 1099 is required.
- They are a US citizen- If they are not a US Citizen, you do not send them a 1099.
- They are an individual and not a corporation- If they are a registered business entity (partnership, S Corp, C Corp, etc) you do not need to send them a 1099.
- You paid them via cash or check and not a third party source- This is a big one that eliminates the need for a lot of 1099’s. If you paid them via a third party source, meaning it didn’t come directly from your bank account to them, you do not need to issue a 1099. The two big third party sources are credit cards and PayPal. It could also be sites like UPwork, etc.
That’s it. If they meet all four of those requirements, you must send a 1099 to both them and the IRS. If they fail to meet even one of them, no 1099 is necessary. And if you do need to issue 1099, they must be sent out no later than the last day in January.
If you have any questions about 1099’s or need help sending yours this year, don’t hesitate to contact us.