Tag Archives: 1099-MISC

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Your business is up and running and you’re finding yourself getting busy. You know you need morehelp, but you’re unsure if you want to hire an employee or bring in an independent contractor.  You might also be wondering the difference between the two. It’s very important to discern the status of these workers as that status makes all the difference for your company and your taxes.
1099
 We’ve compiled a list of the primary differences between the two and have listed them here for your reference. We hope you find it helpful as you decide which is best for your business.

  1. By law, you’re required to withhold taxes for an employee. These include Social Security and Medicare taxes as well as the unemployment taxes you’ll need to pay for an employee.  There are no such requirements for an independent contractor.
  2. An employee is obligated to follow the rules of the company about when they work, how they work, and where they work.  An independent contractor provides a service but is given little instruction about how or where to work.
  3. An employee rarely has the opportunity to hire people to work under him if the workload is too intensive, where as an independent contractor has that ability.
  4. An employee is typically paid an hourly wage or a salary with a specified pay schedule.  An independent contractor is paid for the service he provides in a lump sum.
  5. For an employee to travel or go above and beyond normal duties, you, as the employer must reimburse the employee for mileage or travel expenses.  An independent contractor incurs their own expenses as those are typically built into the fees for the project.
  6. Unless otherwise approved by you, an employee typically works only for you.  An independent contractor may work for many different people and/or businesses.
  7. For an employee, the employer is required to provide the equipment needed to get fulfill the job duties whereas independent contractors provide their own equipment.

Hiring an employee or an independent contractor comes down to a matter of preference. And there are many nuances to each of these factors. We recommend consulting an attorney for specific legal advice and guidance before proceeding.

Should you decide on independent contractor, be sure to check out the services we offer for filing the required tax documentation – a 1099.

Resources:
IRS
Legalzoom
MDC

Hiring a Seasonal Employee: Know the Rules First

Rajeev blog photoIf you’ve got a business operating on limited hours, then chances are you’ll need to hire a seasonal employee. Before you hire, make sure you’re educated! You don’t want to hire someone and have to redo all of the paperwork or be responsible for the taxes you didn’t take out.
Here are some tips and tricks to help you out when tax seasons rolls around again.

1. Make all employees responsible for filling out the proper tax forms for their type of employment. If you have questions, the IRS and DOL have incredibly user friendly websites that can help you determine what forms you will need for each type of potential hire.

2. Seasonal is a time limit, not necessarily an employment status. Seasonal employees are able to work full time hours. You are able to utilize your seasonal staff for full time labor, as long as you comply with labor laws.

3. Within the Department of Labor, seasonal employees have the same rights as regular employees. You are still subject to wage laws with a seasonal employee. You don’t want to be responsible for an unfair workplace violation due to mistreatment of a seasonal employee.

4. Know the difference between a seasonal employee and an independent contractor. A seasonal employee is one who is hired into your company on a seasonal basis, for example: spring harvest season or the end of year holidays. An independent contractor is someone who works as needed for a company under terms specified in a contract or agreement.

5. Ensure that your seasonal hire is not surprised by the termination of their position at the end of their season. Avoid the snafu of wrongful termination by supplying your seasonal employee with clear cut terms and conditions regarding the basis of their hiring within your company.

All too often, companies can fall victim to tax complications as a result of hiring seasonal employees. Before hiring, do your research using all of the options afforded to you including the IRS and DOL websites. Don’t get caught up in complicated legal battles and owing taxes for employees that you under-taxed. As always the best offense is a good defense. Know your rights and know the rights of your employees. Make sure that you issue a form 1099-MISC at the end of the year to all your contractors, just like you would issue a W-2 to all your employees.

When it comes to tax time, contact us for assistance with your e-filing tax needs.

Sources:
http://smallbusiness.chron.com/ways-pay-seasonal-employees-13816.html
http://www.dol.gov/dol/topic/workhours/seasonalemployment.htm
http://www.optimum-solutions.com/payroll/part-time-seasonal-and-temporary-employees
http://www.moneythinking.com/2010/12/30/tax-tips-for-seasonal-employees/

Requirements And Information On The Various 1099 Forms, And When To Use Which One

Almost all businesses will only have to worry about the most common 1099, the 1099-MISC. This form will be used for the most part to pay for labor and services by small businesses, independent contractors, doctors or health clinics.

Corporations are for the most part exempt from this, except for legal and medical corporations. You also must file a 1099 form for any monies paid to an attorney or crew members of a fishing vessel.

Payouts of substitute dividends, royalties or tax-exempt interest will also demand a 1099, as well as the sale of products for resale worth $5000 or more to a retailer who does not have a permanent establishment.

The forms must be filed by February 28th in 2013. This date usually falls in the last week of February if you are filing by paper, and 30 days later if filing electronically. The electronic filing date for 2013 falls on April 1, 2013.

You will need the Social Security Number or the TIN of the business with whom you are filling to form out to. Many small business owners use their SSN, so don’t be surprised if that happens. The TIN is a federal Tax Identification Number.

The 1099 form is the way the government is trying to track income which had been very hard to trace previously, and while there is some extra paperwork, the reporting data is not that hard to adhere to. Online File Taxes can help you with every aspect of your 1099 situation, and help you to make sure that you file the correct 1099 and that their reporting is accurate.

Some of the other 1099 forms are below:

• 1099-INT

• 1099-R

• 1099-B

• 1099-DIV

• 1099-C

• 1099-S

The letter designation behind the 1099 usually gives a clue as to what the form is for. 1099-INT, for instance, is issued by banks and other financial institutions to show how much interest income you’ve had – for instance, from a CD.

If you are forgiving, or canceling a loan, you will issue a 1099-C whether or not the person who had the loan can count that as income. The 1099-S deals with the sale of real estate, while a 1099-DIV deals with dividend income.

Also, as you draw money out of a retirement or pension plan, a 1099-R will be issued so that the taxes can be paid on the money drawn out.

The 1099 form, if used properly can be a good thing to your taxes – it is a much more reliable form of record keeping for expensing purposes. The penalties can be stiff, but if you are keeping decent records the 1099 reporting requirements will not add a huge amount of effort to your tax routine.

Online File Taxes can make sure that all your 1099 requirements are being met, and can do it in paper or e-filing form. Remember, if you have over 250 1099 forms, you must file them electronically.

Go to our website now to see how we can help you with the new 1099 requirements, and any tax service you may need!

1099 Penalties – What You Need To Know And How To Avoid Them

1099 forms are becoming the method of payment for a growing number of people acting as independent contractors and small businesses. Any company or individual with whom you do over $600 must be issued a 1099. This includes payments for rent or any service a contractor, consultant or expert provides.

Professional fees are included in this requirement. These would include doctors, lawyers or other professionals. Payments to corporations are excluded only if they are not involved in supplying you with medical and health care, legal services or fishing activities.

These forms must legally be filed whether or not you are going to declare the money as expenses, and the forms must be filed if you are a business or a nonprofit organization.

Typically, form 1099s must be filed in the last week of February, and if filing electronically about 30 days later. In 2013, the current year, the exact dates are February 28 if filing by paper and April 1 2013 if filing electronically.

If you are filing over 250 1099s, the federal government requires that they be filed electronically. Extensions can be easily obtained using form 8809. You can file it in paper form or over the internet, but if you have more than 10 1099s that you are extending you must file this form electronically.

The extensions must be posted before the regular due date, and extend the period by 30 days. There is recourse if you have lost the information through no fault of your own, such as fire or flood, but you will have to be able to prove how you lost the information.

The penalties can quickly become a major liability to businesses, and can occur for one of two reasons.

The first occurs when you are filing the forms after the due date, or after the extended due date. If it is less than 30 days past due, the penalty is $30/form that it is late, with a maximum penalty of $250,000 ($75,000 for small business).

The rate climbs to $60/form if it is more than 30 days late but is filed before August 1st.

The last and highest rate includes anything filed after the 1st of August, and assigns a $100 penalty per form. The cap on total penalties at the highest end is $1.5 million, and $500,000 for small businesses.

1099 penalties can quickly accumulate. If you enter incorrect information on the 1099 forms, the highest penalty level will be used of $100/form, but if you intentionally disregard the filing requirements or intentionally enter false information the penalties start at $250/1099 form, with no maximum limit.

Online file taxes can easily guide you through the 1099 process, and make sure that you are using the correct 1099 forms. In almost all cases that will be the 1099-MISC, but there are some specialty applications that call for other 1099 forms, such as the 1099-INT, the 1099-B and others.

Keep good records, and there is no need to worry about your 1099s – and Online File Taxes is here to help when you need it!

What are the Current IRS 1099 Requirements for Small Businesses?

The requirements for Form 1099-MISC can seem confusing at times. The good news is any tax professional can clear up questions, and there is a wealth of information online as well concerning who must send out the forms and who are to get them. Here is some general information on the Form 1099-MISC requirements.

All businesses are required by law to issue Form 1099-MISC to those who have performed work or services for them who were not classified as employees. This can include professionals, independent contractors, and other types of individuals and business entities. The Form 1099-MISC is used by the IRS so it can matches the reported income to the person getting it to see that that person is properly reported that money as income. Businesses that do not send out Form 1099-MISC when they are required to do so can face stiff penalties for noncompliance.

Generally speaking, the Form 1099-MISC is to sent out no later than January 31 to the payee, and copies must also be sent to the IRS prior to the last day of February. Some states require that they, too, get copies before certain deadlines. Also, those sending out Form 1099-MISC must file Form 1096. This is a summary of 1099-MISC forms that were sent out.

A Form 1099-MISC must be given to anyone who falls into one of the following:

When non-employees (such as independent contractors) are paid $600 or more.

When there are payments that exceed $10 for royalties, substitute dividends, or and tax-exempt interest.

When payments are made to attorneys or the crew members of fishing boats regardless of the amount paid.

Any payments to persons who are subject to the backup withholding rules regardless of the amount paid.

If there is a sale of $5,000 or more and the sale was for consumer products that are for resale anywhere other than what is considered a permanent retail establishment.

Many times it may be confusing to understand the difference between an employee and an independent contractor. Generally, the IRS says a person is an independent contractor if that person is only subject to the control or direction of another for the sole purposes of detailing or outlining the work that is to be accomplished, BUT is not subject as to methods or to the means by which that intended work is accomplished.

Here is a simple example: A company hires a landscaper to mow the grass. The company can tell the person where the grass is and how often they want it mown, and agree on a price. The landscaper provides his or her own tools, transportation, sets his or her own hours, and is not required to be “on the clock”…this would be an independent contractor.

On the other hand: a company hires a person to do maintenance and this includes mowing the grass. The person is required to clock in and out, is required to be at work at a certain time, is subject to the rules of the company, and is provided the tools needed to get the job done. This person is an employee.

What are the Penalties Imposed by IRS for Failure to File 1099 Forms?

In general, there are two types of penalties associated with 1099-MISC forms. The first concerns those who are required to issue the forms; the second concerns those who receive the forms. Let’s take a look at both.

For those who are required to send out 1099-MISC forms, there are penalties for not issuing Form 1099-MISC. It does not matter if you are a company or a person, if you are required to give someone who worked for you a Form 1099-MISC, you must do to. Generally, you have to give it to the person by the end of February of the year that follows the tax year that the income was paid.

In the event the Form 1099-MISC is not sent out on time, the company may be fined a penalty that can range from $30 to $100 (for each form), with a penalty maximum of $500,000 per year. This will depend on just how overdue the company has missed the deadline in issuing the form. Keep in mind, that if someone intentionally ignores the legal requirement to provide a timely and correct Form 1099-MISC statement, that company may be subject to a $250 minimum penalty per statement, and there is no maximum limit associated with in this case.

Some taxpayers wonder if they should be getting a Form 1099-MISC. The most common reason for someone to send you a Form 1099-MISC is that you did work for that person or company as an independent contractor. Do not confuse this with normal earned wages or salaries which you may have received from a job in which taxes were withheld from you by the employer.

The pay that is reported on your 1099-MISC is normally subject to both federal income tax and as well as state income tax. It is the responsibility of the one who paid you those monies to send you a copies of your Form 1099-MISC. You must then report these earnings on your tax returns.

What Income Can Go On Form 1099-MISC?

The answer is there are many types of income which can be reported using the 1099-MISC. This might include rents, non-employee compensation, most types of royalties and charter bus or even fishing boat proceeds. However, most often, the reason for getting a Form 1099-MISC for someone is that you worked as an independent contractor at some point during the year. An independent contractor is NOT considered an employee and therefore the company or person you worked for is not responsible for withholding taxes on you.

If you do not include the 1099-MISC income on your tax return, you may be penalized. In some cases, such as you underpay your tax, the IRS can charge you as much as 20 percent of the underpayment. For instance, if you underpaid (because you ignored your Form 1099-MISC, by, say, $500, the penalty could be $100 (which is $500 x .20 = $100). You can avoid these problems by making sure you include all of your miscellaneous income. If you are not sure about any of this, contact a professional for advice.