- What is a 1099?
In this video we're gonna be talking about 1099s,
especially within the context of independent contractors.
Which are not considered to be employees of the business
but receive compensation for their work,
just like employees do.
Hi everyone.
I'm Hector Garcia.
I'm a CPA, QuickBooks Consultant and Business Owner.
I'm a big fan of Intuit QuickBooks,
and I'm partnering with them
to produce this video series about payroll.
In fact, I have an entire YouTube channel where I have tons
of videos about QuickBooks, accounting, tax
and a bunch of important things for small businesses.
Hit the like button. (clicking sound)
If you're interested in seeing more videos
with these topics.
Today, we're gonna be talking about form 1099-NEC,
which is a very important form
for both you and your contractors.
NEC stands for Nonemployee Compensation
and the form 1099-NEC is how businesses report to the IRS,
the compensation paid
to the independent contractor during the tax year.
And if they're not filled out correctly or timely
there could be costly consequences,
penalties for the business.
And additionally, if the independent contractors themselves
do not report that income to the IRS,
there could be issues for the contractor as well.
Every year, around January,
the businesses will submit a 1099-NEC to the IRS
and give a copy to their contractors.
The reportable annual threshold is $600.
So if an independent contractor is paid less than that
during the entire year, it is unlikely
that they will get a 1099-NEC form from that business.
So what's on the 1099-NEC?
They contain six important pieces of information.
First, you've got the payers company name,
the payer's company address, the payers tax ID or EIN.
Then we're gonna have
the recipient's social security number,
if the contractor happens to be an individual
or an EIN if the contractor is a business.
It also contains the total compensation paid
to the contractor during the tax year.
And also if there's tax withheld on those payments
that will be reported as well,
but that's very rarely used.
It's important to note that there are many different types
of form 1099s out there.
There is 1099-MISC or 1099 miscellaneous,
1099-C, 1099-B, 1099-K, 1099-DIV,
1099-G and others.
These additional 1099 forms report other types of income
such as rental payments, cancellation of debt,
interest, dividends and unemployment benefits.
In many cases that could be taxable income
to the person that receives it.
Now let's talk about the right process to pay and report
1099s for contractors as a small business,
because there are several steps involved here.
First, make sure your contractor fills out form W-9.
This is a formal document,
where the contractor provides the business,
their legal name and tax information.
It is recommended that you do not make a payment
to the independent contractor until you receive
that W-9 form, especially when the cumulative
of amount of the year reaches $600.
It is recommended to also have a legal contract
that underpins the relationship between the contractor
and the business, that lays out the payment terms
independence between the parties,
culmination of the contract with dates
and responsibilities under the contract.
Make sure to seek help from an attorney on this matter.
Next, you may pay your contractor
using whichever method you prefer,
cash, check, direct deposit,
cash transfer apps, et cetera.
Your options include here,
using payroll software like Intuit QuickBooks.
Make sure you keep strong records
of when and how these payments were dispersed.
If the W-9 contains a voluntary withholding
or you have received instructions
from the IRS to withhold money from those payments,
make sure you keep that in mind
before actually issuing those payments.
And finally, you will want to fill out a form 1099-NEC
for each contractor
and report the total compensation for the year.
Now that you've filled out a 1099-NEC
let's talk about how to file it
or report it to the IRS.
There are two ways to do this,
you can do it via U.S. postal mail
or electronically using E-filing.
E-filing is typically the easiest
and fastest way to report your 1099s.
If you're a QuickBooks user
you may already be a fan of E-filing,
as QuickBooks allows users to auto-import
those details from the contractors into those forms.
And also users can print
and send those copies to the contractors,
so they can submit it to the IRS, timely.
Additionally, if you use QuickBooks Payroll,
the first three 1099 forms are actually free.
Now that you have a better understanding of 1099s,
you're better equipped
to handle your contractor's tax information.
I would like to quickly summarize a few best practices.
One, collect your contractor's information
using the W-9 form early on
to avoid the stress of the deadlines.
I suggest that you make it a requirement to
get a W-9 form filled out and signed prior
from making the first payment to the contractor.
Even if the dollar amount under $600.
That should help speed up the process.
Make sure to add in your calendar
the important dates related to any tax
or form submission deadlines.
Three, when possible
avoid paying the contractor in cash.
Try to use a check or a digital form of payment
to leave a paper trail,
that will make the process easier
when reporting those 1099s at year end.
Four, keep good records of who you are paying
and for what purpose.
This is where having a great bookkeeping system
like QuickBooks could help immensely.
Five, leverage your bookkeeping system
to electronically file these forms.
For example, QuickBooks has an add-on service
that takes all your contractor and payment information
and automatically generates the forms for you
to get them ready for electronic filing.
Again, I'm Hector Garcia.
And thanks for joining me in this video.
Leave a comment below
and let me know if you have any other questions about 1099s.
or any other payroll topic.
If you found this information helpful,
make sure to click that like button. (clicking sound)
Subscribe to the QuickBooks YouTube channel
and ring the notification bell. (bell ringing)
Thanks.
And I'll see you next time.
(upbeat music)