Just as the holidays finish up, tis the season… for tax forms! This especially holds true if you’re a business owner – suddenly there are all sorts of forms with all kinds of crazy letters after them to deal with.
One you’ve likely heard of is the 1099-MISC, the “Miscellaneous Income” form. This is a little confusing because you aren’t entirely sure what constitutes “Miscellaneous” and if you even need to bother with the thing. Who exactly gets the 1099-MISC and what goes on it?
What the 1099-MISC Does
Anyone who has worked independently or freelanced no doubt has lots of experience with the 1099-MISC. During tax time you’ve probably been swamped with them, scattered around your desk or kitchen table as you tried to figure out your taxes.
This is because this particular form reports, among a few other things, money made through freelance jobs. If you were a freelance writer and wrote several blogs for a company, they would report your earnings with the 1099-MISC. The same goes for an independent carpenter who did work for a business, computer repair expert, or any other contracted jobs.
As a business owner, you have to send these forms out to anyone you hired on an independent basis. Basically, if they’re not a full or part time employee and you paid them for work, you send them this form.
Why It’s Unique
Why do freelancers get special treatment? Why can’t you just send them a W-2 like all the other people you pay to help operate your business?
There’s actually a perfectly good reason why: the tax difference between a freelancer and an employee. For an employee you take out a certain amount of money each month to pay taxes to the government for them. A percentage is taken out each period and they get the remainder of the funds in their paycheck.
When you pay a freelancer, you don’t do any of this. If they require $1000, you pay them $1000. Later, they must pay their own taxes. You have no tax or Social Security obligation on their behalf, so you just report how much money you paid to them and that’s it.
This is freeing in a way. You don’t have to do any extra paperwork for them like you do an employee. Just tell them how much you paid them throughout the year and send them on their way to do their own tax paperwork.
Since your contractors and freelancers depend on this form to do their taxes the way your employees depend on the W-2 to do theirs, you should make sure to get them out on time. Like a lot of other tax forms due around this time, the 1099-MISC is due to be sent out by the end of January. This gives the freelancers time to do their taxes without rushing and making mistakes.
It’s not an arbitrary date, though – make sure to get them out in the mail on time. You can wrack up fines and penalties for sending a 1099-MISC late if you’re reported. This goes for every single one of the forms you need to send out, so don’t mess around and miss the date!
About the Author:
This guest post is brought to you by GoDaddy Online Bookkeeping (formerly Outright) the simplest way to manage your small business finances online. Sign up today for a less taxing tax time!