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Request one from any contractor as soon as you hire them. You can see whether a contractor is incorporated based on the information on their Form W-9. You don’t need to file Form 1099 for a contractor registered as a corporation.
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It’s rare, but sometimes an independent contractor will be registered as a C corporation or S corporation. If you did pay a contractor more than $600 for services, you need to file a 1099. Even if you did less than $600 of work for a client and never received a 1099. Keep in mind that if you’re an independent contractor, you still need to report all your income. If you paid an independent contractor less than $600 over the course of the financial year, you don’t need to submit Form 1099-NEC for them. In other words, the payer fills out the 1099. If your business hired the contractor and paid them more than $600 in a year, you’re responsible for issuing them a 1099-NEC. Who gets a 1099?Īll contractors and partnerships who did more than $600 of work for your business should receive a 1099. Check out the company’s “About” or “FAQ” section for tax filing details before you start using their service. These details vary from one third-party hiring service to another. For instance, if you hire a freelancer through Upwork, Upwork is actually the one doing the hiring, so you don’t need to submit a 1099. If you hire a freelancer through a third-party service, you may not be required to submit a 1099 for them. Common examples include graphic designers, web developers, copywriters, and social media consultants. By definition, an independent contractor is not an employee.
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Independent contractor definitionĪn independent contractor is anyone you hire on a contract basis to complete a particular project or assignment. Independent contractors will need to report all their income on Schedule C, even if it falls under the $600 range and there wouldn’t show up on any 1099s. But if you don’t receive a copy of the 1099-NEC from your client, you should follow up with them. If you’re an independent contractor, it’s not your job to file the 1099-NEC. (That’s $600 or more over the course of the entire year.) The IRS uses this information to independently verify your income, and therefore your federal income tax levels. If you’re a small business owner, you’ll most often be dealing with Form 1099-NEC, so we’ll focus on that one.įorm 1099-NEC, Copy A What is a 1099-NEC Form?ġ099-NEC is the version of Form 1099 you use to tell the Internal Revenue Service whenever you’ve paid an independent contractor (or other self-employed person) $600 or more in compensation. These types of income are reported on other types of Form 1099, which you can read all about here. As such, there's a threshold of $5,000 for tax year 2024 as part of a phase-in to implement the $600 reporting threshold.Īn individual can also make money from tax dividends, prize winnings, interest income, IRA distributions, state tax refunds, miscellaneous government payments, the sale of personal property, or even credit card debt forgiveness.
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Note that the $600 threshold that was enacted under the American Rescue Plan (ARP) is currently on hold and the IRS is implementing a transition period for contractors and business owners to prepare for the full rollout in the 2024 tax season. If you paid an independent contractor more than $600 in a financial year, you’ll need to complete a 1099-NEC. There are 20 variants of 1099s, but the most popular is the 1099-NEC. A 1099 is an “information filing form,” used to report non-salary income to the IRS for federal tax purposes.