1. Money

How to Prepare and Distribute Form 1099-MISC to Contractors and Others

By

Form 1099-MISC includes information on compensation paid the previous calendar year to various individuals and entities This form is NOT used for employee wages and salaries.

Due Date:
1099s are due to contractor workers by the end of January each year, for the previous calendar year. The 2013 1099-MISC must be sent to the IRS by February 28, 2014. Read more about preparing and distributing Form 1099-MISC.

Gathering Information
The information for this form comes from your total accounts payable for each vendor. The 1099-MISC is most commonly used for independent contractors and vendors who are self-employed individuals; for example, a janitorial service or web developer might be in this category.

Difficulty: Average
Time Required: Varies depending on the complexity and number of income categories needed for each form.

Here's How:

  1. Do I Need to File a 1099-MISC?
    First, determine if you need to prepare a 1099 for payments you made to these recipients. You must prepare a 1099 if:

    • You paid $10 or more in royalties or broker payments
    • You paid $600 or more in payments on any other other categories except fishing boat proceeds or payments to an attorney
    • You made any amount of fishing boat proceeds or payments to an attorney.

    The 1099-MISC form is also used to report backup withholding and to report direct sales of at least $5000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.

  2. Payer Information
    For each 1099-MISC you prepare, you will need to include information about your business:

    • Your Federal Employer ID Number
    • Your Business Name
    • Your Business Address

    Recipient's ID Number
    This is the recipient's social security number or Federal EIN.
  3. Payment Amounts
    Enter amounts paid in the appropriate box:

    • 1 Rents
    • 2 Royalties
    • 3 Other Income
    • 5 Fishing boat proceeds
    • 6 Medical and health care payments
    • 7 Nonemployee compensation
    • 8 Substitute payments in lieu of dividends or interest
    • 9 Direct sales of $5000 or more of consumer products for resale
    • 10 Crop insurance proceeds
    • 13 Excess golden parachute payments
    • 14 Gross proceeds paid to an attorney
  4. Federal Income Tax Withheld
    Enter any amounts of federal income tax withheld from payments to recipient in Box 4.

  5. Section 409A Deferrals and Income
    Boxes 15a and 15b require you to record Section 409A deferrals and income. Section 409A refers to a relatively new (2004) section of the Internal Revenue Code which has to do with non-qualified deferred compensation plans. Check with your tax adviser or a tax attorney if you think you may have to report non-qualified deferred compensation to someone.

  6. State and Local Information
    In this section you will enter information about state income and withholding. Note that you may enter information for one or two states. Enter:

    • The amount of state tax withheld (Box 16)
    • The state/Payer's state number (for example, IA/IA-80-88933331) (Box 17)
    • State income (Box 18)

    If you must enter information for more than two states, you will need to complete another 1099-MISC for that information.

  7. Check For Accuracy
    Spend time making certain that the information you are providing to recipients, and to the IRS and any state taxing entity is accurate. Check your payment totals for the year and run a 1096 Form to double-check accuracy.

  8. Print and Distribute Forms
    The 1099-MISC is a multi-part form. Here are the parts of this form and where to send each:

    • Copy A is sent to the Internal Revenue Service
    • Copy 1 is sent to the state tax department(s)
    • Copy B is for the recipient
    • Copy 2 is for the recipient to file with his/her state income tax return
    • Copy C is for the payee (you).
  9. Form 1096 Compilation Report
    When you have completed all of your 1099-MISC forms, you must prepare and submit to the IRS a Form 1096 which totals all the information from the 1099 forms.

  10. Read more about Form 1099-MISC.

    Back to Filing Year End Wage and Tax Reports

Tips:

  1. Your business's state tax ID number is NOT your state sales tax ID number. Many states use the federal tax id number (EIN) and add digits onto the end. Check with your state department of revenue for information.
  2. Disclaimer
    The information provide in this "How To" is for general purposes, to help you collect the information you need to prepare and print 1099-MISC forms. It is not intended to be tax advice and in no way does this information attempt to be comprehensive or to tell you all the information that must be included in your 1099-MISC forms. Talk to your tax adviser for information about your specific situation.

©2014 About.com. All rights reserved.