What is a 1099?
OK, so let's start at the beginning and answer one of the first questions that many small business owners have; what is a 1099, and why do I have to fill one out. There are many different 1099 forms (and others like 5498, 1098’s and a few others that are included in the "1099" family), so there are many different types of reasons, but in general, they are used to report nonemployee compensation.
Basics
As I said the 1099 family of forms is used to report certain kinds of nonemployee income to the IRS; these are often irregular payments throughout the year. Contractor payments are often quoted as an example, but there are many others such as interest payments, royalties, winnings just to name a few.
As a small business owner, it’s your responsibly to track these payments and issue the appropriate 1099 to the recipient. This can be done at the time of the payment, or at the end of the year.
The Workhorse
By far the most used 1099 form is the 1099-Misc, as the shortened name implies, it is the form used to report miscellaneous income payments. In fact many folks simple refer to the 1099-Misc form as the "1099" form. You use this form to report payments of more than $600 made to nonemployees for services provided as an independent contractor.
How does it works
If you pay someone more than once, you don’t issue a 1099-Misc form each time you pay them; instead you will total your payments throughout the year. Then at the end of the year, or in January of the year following year the payments, you will issue a single 1099-Misc form and mail the Copy B of that form to the recipient. Then after a few weeks, and before the end of March, you will send a copy of the Copy A 1099-Misc form to the IRS, along with a summary 1096 form.
What’s a Copy A, and where did the 1096 come from?
Ok, so I put a couple of new terms in the previous paragraph, but it’s really simple. Each form, or at least most of the 1099’s have different versions or copies as the IRS calls them. And each copy differs by who receives the form. The Copy A, is sent to the IRS, usually printed in red ink, The 1096 is a single summary of certain amounts on the 1099, this is also printed in red ink. The Copy B is sent to the recipient, the person who received the money, the Copy C is often reserved for the payer, that is typically you, the person who paid the money, or in some of the 1099’s it could be Copy D. A few of the forms have Copy 1 and Copy 2, these are usually for state or local reporting, check with individual state for rules on which copy to send. Most state have a web site that will explain their 1099 requirements.
The rest of the family
So we talked about the 1099-Misc, but there are many other forms, each with its own purpose. A few of the more often used forms are the 1099-Div for reporting dividends, 1099-Int for reporting interest payments. There is a W2-G used to report winnings, things like horse races or bingo pay outs. Even though it has the “W2” in the title, it’s really more of a 1099, and is included in the family. I not going to list all of the forms here, you can find them on the IRS web site www.irs.gov, search the Forms and Publications section for both form explanations and instructions.
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