How the 1099 Misc Form for the IRS Works
One of the more complex forms that one can file with the Federal IRS would definitely be the one that is used by the self employed, the 1099 Misc. This form is referred to as an information return and it works in a way that is very similar to the W-2, the form filled out by those employed with a company. Despite the fact that many people believe income earned from a business that is not employing them doesn’t count in the eyes of the IRS, this is not true and all taxpayers are required by law to report income that they earn, whether it be in the form of commissions, royalties or other types of fees charged for a service. Prizes and awards also fall under this form, as do payments given to cover medical, dental or legal expenses. If payments by a business, to any person not employed by that business, are total to $600 or more, that both the individual and the business must file this form in order to report the payment. In the case of royalties, in particular, even $10 must be reported.
When it comes to this type of tax form, there are two primary entities that will be using the forms, other than the IRS itself: the business issuing the payments and the service provider receiving the payments. The 1099 Misc is a complicated form with several parts to it. For the business, Copy A is what they will use to report the payments to the IRS, Copy 1 is what they will report to their state department of revenue and Copy C will be kept for the records of the business itself. The business must also provide the independent contractor with Copy B and Copy 2 so that they can report their income for both federal and state tax purposes, with Copy B going to the IRS and copy 2 going to their local state department of revenue.
Independent contractors will definitely want to make sure that they keep records of payments that they have received and also that they receive the required 1099 Misc form from each company they have been paid by. The law requires that companies send out these forms by January 31 of each year so if you have not received one of these forms by that date, you should contact the business to let them know. As complex as this form is, once you understand the basics it is not so complicated, but as always, you will want to seek out professional advice if you are even slightly unsure of how to report your income as a mistake with the IRS or a state department of revenue could be very costly.