The Internal Revenue Service (IRS) requires employers to provide a 1099 income reporting form for all independent contractors who earned more than $600 in a calendar year. Starting in 2020, the IRS required employers to select one of two types of 1099 forms rather than defaulting to the 1099-MISC form used in previous years.
If you paid vendors at least $600 this year, you should issue them a 1099-MISC form by January 31, 2022. Independent contractors should now receive 1099-NEC or miscellaneous non-employee compensation. Regardless of whether you send one type of 1099 income reporting form or both, you will need to send one copy to the IRS and one copy to the vendor or independent contractor. If the vendor or independent contractor lives in a state that collects income tax, you will need to submit one to that state’s taxation department as well.
The IRS also requires companies that distribute 1099-MISC or 1099-NEC forms to include Form 1096. The name of this form is Annual Summary and Transmittal of United States Information Return. You will need to file a separate Form 1096 for each type of 1099 you issue, but only if you submit paper copies by mail. This requirement does not apply when you file your company’s 1099 information electronically.
Electronic Filing of 1099s Can Save You Time
Choosing to file your 1099 information electronically is faster than sending in manual forms and often more accurate. The electronic filing system flags most mistakes before you submit them, giving you an opportunity to correct the information.
You also need to consider the downsides to e-filing 1099s. The IRS could lose your filing, you could experience difficulty with transmission, or you could lose the information if you forget to make a backup copy and your computer crashes.
If you wish to proceed with using the e-filing system, navigate to this link and follow the onscreen prompts. The name of the electronic filing system is Filing Information Returns Electronically, or FIRE for short. The IRS requires any business that issues 250 or more 1099-MISC or 1099-NEC forms to file their reports electronically.
Information to Know Before Using the IRS FIRE System
Before creating an account with FIRE, make sure you have invested in software or work with a service provider with the ability to create forms in the format required by the IRS. The IRS will not accept photocopied 1099 forms.
You will need your employer identification number (EIN) to use the IRS FIRE system. Once you have created an account, you should select the send information returns tab and input your EIN. Next, select the original file option and enter the personal identification number (PIN) provided to you by the IRS. You can then upload your 1099 document, and the system will prompt you to select whether you have completed the process or you need to enter another one. The IRS should send you a verification email within a few days.
No Time to Create and Submit 1099s? Palmetto Payroll Can Help
Whether your company issues W2s, 1099s, or a combination of both, outsourcing the work to Palmetto Payroll saves time and money. Please contact us to learn more about all services we offer to support small business owners.