Many business owners hire independent contractors at some point. Whether you have several contractors working for you regularly, or just bring one on from time-to-time, properly tracking payments to service providers can be a challenge. The following Form 1099-MISC preparation tips, offered by The American Payroll Association, can ensure your tax reporting is correct for 2016.
Form 1099-MISC must be given to all non-corporate service providers. If you paid a service provider at least $600 for services during 2016, you must provide a 1099-MISC to them no later than January 31, 2017. If the provider is a corporation you generally do not have to provide Form 1099-MISC.
Cover all of your bases. If you are unsure whether a Form 1099-MISC is required, go-ahead and send one. If you don’t send all qualified service providers their Form 1099-MISC, you set yourself up for penalties.
Deadlines Matter. If you’re sending Forms 1099-MISC to service providers by mail, make sure to send them out no later than January 31, 2017. New for 2017!! If your Forms 1099-MISC include an amount in Box 7, Nonemployee Compensation, you have until January 31, 2017 to send paper copies to the IRS (less than 250 forms) or file electronically. If there is nothing in Box 7, February 28 is the last day to submit paper copies to the IRS (March 31 if you file the forms electronically).
TIN truncation. Payees’ Tax Identification Numbers (Social Security number or employer identification number) may be truncated on their paper or electronic copies, but forms filed with the IRS must contain their full TINs. Under the truncation procedure, the first five digits are replaced with either asterisks or Xs: ***-**-1234 or XXX-XX-1234.
Let your credit card handle the paperwork. If you paid for contractor services with a credit card, debit card, or gift card, do not file the Form 1099-MISC. The bank or credit card company that made the actual payment will take care of it for you by sending the contractor Form 1099-K.