An IRS Form 1099-MISC is used to report payments to certain recipients during the year.
A Form 1096, a transmittal form, is the cover page for the 1099s that you will submit to the IRS (unless you file electronically). This form totals all payments on your 1099s.
Determine who is an independent contractors and who is an employee. The IRS gives us these guidelines:
The IRS Publication 15, also known as Circular E, The Employer's Tax Guide is also an excellent resource for this determination.
If you determine the individual is an employee, see this page for the correct IRS payroll tax form to send them.
If you determine that the individual is indeed an independent contractor, then the second step would be to send an IRS Form 1099-MISC to them...if you paid $600 or more in services, rents, prizes and awards and other income payments. (See below for comments from an IRS agent regarding this subject.)
The time frame for which you report payments is the calendar year, not your fiscal year. The forms must be sent to the individuals by the end of January and to the IRS by the end of February even if you electronically file.
Rents are reported in box 1 of the IRS form 1099-MISC. Payments for services subject to self-employment tax (FICA and Medicare) go in box 7 - Nonemployee compensation.
Services include independent contractors who provide a service. Some examples of independent contractors include: repairmen, accountants, attorneys, cleaning services, and lawn care services. Do not send 1099-MISC’S to corporations.
One of my readers spoke to an IRS agent regarding this subject.
This was the IRS agent's reply: "1099-MISCs are not required for payments to electricians, plumbers, or similar SE individuals who are coming in for a short-term job. For example, a plumber who comes in to install or repair the bathroom sinks, does not require your business to distribute a 1099-MISC.
Independent Contractors who should get a 1099-MISC are non-employees who are hired for a longer period. For example, your business hires Mr. X and Mr. Y for three months to build a garage. They should be provided with an IRS form 1099-MISC.
(Thank you Roy Lainson for obtaining this clarification for us.)
You should not pay an independent contractor until you have received a completed and signed W-9. Use Form W-9 "Request for Taxpayer Identification Number and Certification" to obtain names, address, and taxpayer identification numbers (SSN or FEIN) from people you will be required to provide 1099-MISCs.
Have all independent contractors fill out a W-9 even if you think they are incorporated. If they are, there is a place on the W-9 for them to indicate they are incorporated.
Click here to view
instructions for the IRS form 1099-MISC.
Completing a 1096
Notice: If you efile your 1099s you can skip the 1096 form, but be aware that you will pay a fee to electronically file your 1099s with one of the IRS recommended vendors. See IRS Pub 1220.