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. Depending on your package level with us, we might even do that for you.
Who Needs a 1099?
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 a contractor receives one from your business or not? Here is a quick checklist that runs down all the criteria the contractor must meet in order to require a 1099 be sent to them:
- They were paid at least $600– If you paid them $599 or less for any services during the entire 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 (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- 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 places like Upwork, etc.
- NOTE: PayPal Business accounts issue the 1099’s for you however, Personal PayPal Accounts “Friends and Family Payments” leave you responsible for 1099 issuance.
- Watch for new forms in 2020 – Form 1099-NEC is now used for miscellaneous contractors.
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. If you do need to issue a 1099, it must be sent out no later than the last day in January. A big benefit of utilizing a virtual CFO is that they can keep track off those expenses and send the 1099s out to the contractors that need them. If you are interested in seeing how we can take the 1099 burden off you, hop on our website and schedule a free financial review with us!