What Is a 1099 Form?
A 1099 form is an IRS tax form used to report how much a company pays a non-employee during the year. A 1099 reports payments to contractors and freelancers, income from interest and dividends, rental property income, and other miscellaneous income. There are a few types of 1099 forms for the following types of payments:
- Independent Contractor Income: Freelancers, contractors, consultants, etc. that are paid $600 USD or more during the year will receive a 1099-MISC form to report earnings.
- Retirement Withdrawals: If someone takes money out of a traditional IRA that is taxable then a 1099-R must be filed.
- Interest and Dividend Payments: Corporation payments to shareholders result in a 1099-DIV form to report dividends and other distributions from the year. Recipients of interest payments will receive a 1099-INT.
- Government Payments: Anyone who receives income tax relief payments or unemployment payments will receive a 1099-G
- Debt Cancellations: If a creditor cancels a large portion of outstanding debt, then a 1099-C will be sent to report the amount canceled.
Why are 1099 Forms Important?
With the rising number of freelancers and contractors working with large companies, 1099 forms are increasingly important. As opposed to a W-2 form, which is for full-time employees, a 1099 form is for non-employees. The IRS has strict classifications on what constitutes an employee versus a contractor and is constantly on the lookout for companies that misclassify, imposing strict penalties on those who do not comply.
How Can a Freelance Management System (FMS) Help Organize 1099 Forms?
A freelance management system (FMS) can automate the process of 1099 administration. Instead of manually processing a 1099 form for each contractor or freelancer, an FMS will automatically organize and send the form to each individual. An FMS will also help to properly classify each worker, so companies understand which individual needs a W-2 and which need a 1099 form.
Freelance Management Systems can also help organize all necessary paperwork required to file a 1099 form, keeping it in one easily accessible place. Furthermore, the software can keep track of signed agreements, so individuals understand they are classified as a contractor and therefore will receive a 1099 form. For companies are unsure about how to classify a worker, the IRS has a 20-point checklist, which can be viewed here.
Does Your Company Need a Freelance Management System for 1099 Payments?
If your company has had problems with worker classification, keeping track of documents, or creating 1099 forms, then a Freelance Management System is right for you. An FMS saves valuable time and resources and ensures your company classifies workers appropriately, maintaining all necessary documentation. If your business has had any of the above problems, then it’s time to consider moving to software that can help.
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Payments, W-9 onboarding, automated 1099 generation, and IRS e-filing