You can refer to Form 1099 as an information return filed to report specific payouts you have made to people who are not employed under you. Though over 20 distinct 1099 tax forms report additional payments, we shall discuss form 1099 NEC.
The form 1099 MISC has been amended for miscellaneous earnings and is in effect with the tax year 2020 and more. If you file a 1099 return with the IRS, the Internal Revenue Service will reconcile the vendor payments with the revenue they showcase on their tax returns.
For 1099-NEC functions as Form W-2. When you have workers, you send Form W-2 to them for filing their personal tax returns.
Like Form W-2, if you own a business and hire independent contractors for your work, you should offer Use Form 1099 NEC to your freelancers and contractors if you have given $600 or more to them in the tax year so that you can use them in their tax returns.
Steps to prepare form 1099 NEC
Managing independent contractor taxes is simple. When preparing 1099, you should ensure that you have all the right information about your vendors and contractors. If vendors have filled out Form W-9 and submitted it to you, it will get simpler for you.
A W-9 form has the name, address, employer identification number, social security number, and more. It also has its tax filing entity, so you can easily find out if you need to issue 1099 or not.
Information needed for filing 1099:
- EIN or SSN
- Amount paid during the year
- Legal name and address of the contractor
After you have the form W-9 from your freelancer, please fill it out with your federal income tax ID number and the contractor's amount. If you have withheld any amount, fill it in the recommended boxes for federal income tax or state income tax you have withdrawn.
The last step is to send the forms to the contractor and IRS. You should send the form 1099 NEC Copy B to the contractor before 1st February. If the deadline is skipped, you will have to pay the penalty to the IRS for late submission, and your contractor will file their taxes late.
Submit Copy A of Form 1099-NEC and form 1096 to the IRS before 1st February. Retain a Copy C for your record.
How to amend the 1099 Form that has been filed already
Thinking, how to amend 1099??? Rectifying 1099 errors isn't as difficult as people think it to be. You need to fill out a new form, a rectified form, send it to the IRS, and make the corrected box sited at the top of 1099. It will help the IRS know your corrected form and mistaken form.
You should also add a new form 1096 with the amended return. Form 1096 works as a reconciling form that reveals the details from the 1099 forms you have mailed to the IRS.
Form 1096 should be included with every 1099 form. However, if you are filing electronically, you don't have to add the transmittal form.
What if you skip the 1099 filing deadline?
If you have skipped the due date, no, the world is not over yet! However, you may have to pay a late 1099 form penalty:
- $ 50 if you have filed within 30 days.
- $100 if you have filed after 30 days but before 1st August.
- $260 if you have filed after 1st August.
You need to pay additional penalties when you file on paper forms, but you had to electronically file it. If you report a wrong TIN or forget to report at all, you file paper forms that are not readable by machines.
What to do if you have wrongly entered your name or TIN?
There is no need to file a new corrected form for some errors. For small incorrect information like entering your name or TIN wrongly, you can send a letter to the IRS with details like your name, address, payee TIN, error type, filing method, type of return, tax year, and if income tax was withdrawn.
Regardless of whether it is electronic or manual filing, you can still mail a letter with your right name and TIN to the IRS.
So, if you file electronically and need to make electronic corrections, you should file the correction on the e-filing IRS website. Depending on the errors, there are different types of errors to rectify.
Types of errors in 1099 forms
Type 1 errors
If you have mentioned any incorrect money amounts, wrong codes, or checkboxes, if you have filed a return by mistake, these errors are Type 1 errors. To rectify these errors, you should follow the steps given below:
- Draft a new corrected form 1099 NEC and put an X in the "corrected box."
- Write the correct information and the rest of the details.
- Write the form 1096 too with corrected information.
- Mail the rectified form 1099-NEC to your contractor, IRS, and state tax department.
Type 2 errors
Type 2 errors occur if the taxpayer-identification numbers are committed, or any incorrect information such as the incorrect name of the payer or incorrect tin is added.
To rectify these mistakes, you should follow the steps given below:
- Prepare a separate form and mark a cross in the "corrected box."
- Enter the name of the payer, account number information correctly. Mention all the correct information and write zero for money amounts.
- Draft a new 1096 with correct data.
- Mention the following phrases at the top "filed to rectify SSN" or "filed to rectify name."
- Mail the corrected form 1099-NEC and 1096 to the state tax department and IRS.
Do you get penalized by the IRS for 1099 errors?
Sometimes, the IRS may fine you for making 1099 errors. Your penalty amount differs and depends on some aspects:
- The size of your business
- The type of mistake done by you
- Late filing penalty
Some of the mistakes that the IRS penalizes are:
- Filing manually or on paper when you have to file electronically or e file.
- Forgetting to report a Taxpayer ID.
- Failing to file before the due date.
- Filing a paper that is not machine-readable.
- Not sending 1099 to your independent contractors.
- Not mentioning the relevant information in a proper format as a payer.
Should you submit 1099 forms with your state?
Depending on your business's location, you should submit 1099 forms with your state. Speak to a tax expert to learn more about your required state tax departments.
Steps to nullify 1099
Now that you know how to amend a 1099 and rectify errors, you can easily do it independently. But what if you have not sent the form yet?
For instance, you are filing a 1099 form with many 1099 tax forms. Every 1099 form entails the income of different independent contractors.
If you have found out that you have made an error in one of the forms, you should void it. Voiding means that you have to cancel the 1099 sheet, preventing the hassle of redoing everything.
You also should remove the form from the 1099 sheet. The IRS will not accept detached forms. So, if you notice a mistake when typing your 1099 form, you should void the form instantly.
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How to void 1099?
- Type X in the 1099 form's void box.
- Mention the correct information for 1099 you have mentioned wrongly. If the voided form was for an independent contractor, enter the correct details on the new 1099 sheet.
- Draft form 1096.
- Send the voided and correction form to the IRS and relevant state department.
If your business files not more than 250 forms every year, you should submit paper 1099s to the IRS. But, when the files are more than 250 forms, you should go for an e-file.
Tips to avoid common errors
Some preventative measures help to make a major difference when completing form 1099.
- Do not write "0" or "none" in any boxes. If a box is not suitable for your business, leave it like that.
- Do not forget to add the decimal point or cent.
- Always use the proper box to mention information
- Do not include dollar signs in the money amount box.
- Do not make entries that are very big or small.
- Do not use 1099 to report employee wages.
It is always recommended to file form 1099 in the right manner in the first place. The right way to avoid a mistake is to ask for a new W-9 form before filing 1099. It will help you avoid all types of mistakes that you may make without proper knowledge. This completely omits your chance to file an amended copy later. If you need any other information related to the required forms and details, you can go through the IRS website for it.