IRS Form 1099 Reporting for Small Business Owners

Businesses are required to send copies of Form 1099-MISC to the IRS and contractors if the business paid $10 or more in royalties or $600 or more in compensation to non-employees. Form 1099-MISC is due by January 31st to report payments made the previous calendar year. Accounting software can prepare and file Form 1099-MISC.

You can prepare Form 1099 using accounting software like QuickBooks. With QuickBooks, you can prepare Form 1099 using the financial data you’ve already been tracking and then print or email the forms directly to your contractors. Get started with up to 50% off QuickBooks.

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What Is a 1099 Form?

Form 1099 is an information return. The most common payroll form of this type for small and mid-size businesses is Form 1099-MISC, but there are other types. Form 1099-MISC is filed by businesses to report certain types of payments, most notably to independent contractors. Form 1099-MISC is due by January 31 to report payments made in the previous calendar year.

Download IRS Form 1099-MISC Here

Who Is Required to File Form 1099-MISC?

Businesses are required to file Form 1099-MISC if they have paid at least the minimum threshold for various types of payments during the previous calendar year. Form 1099-MISC is typically issued to people, sole proprietors, and partnerships. In some circumstances, businesses may need to issue a Form 1099-MISC to corporations. Although this process isn’t necessarily a part of doing payroll (because it’s for contractors versus employees), it’s still important for employers to be aware of.

The minimum thresholds when businesses are required to form 1099-MISC are:

When Form 1099 Is Issued to Corporations

Form 1099 is issued to corporations, including limited liability companies taxed as a C corporation or S corporation in the following circumstances:

• Attorney fees and gross proceeds paid to attorneys
• Fish purchases
• Payments by federal agencies for services
• Payments by insurance companies for medical, dental and other health care services.

When to File Form 1099

The due date for filing Form 1099-MISC is January 31 for most businesses. By this January 31 deadline, businesses furnish one copy of Form 1099-MISC reporting payments made during the previous calendar year to their contractors and vendors. Another copy of Form 1099-MISC is filed with the IRS by the same deadline.

The deadlines for filing Form 1099-MISC are:

How to File Form 1099-MISC With the IRS

Businesses file one copy of Form 1099-MISC with the IRS. A second copy of Form 1099-MISC is furnished to the person or vendor who received the payments. Businesses can use paper forms or software to prepare the Form 1099-MISC. Alternatively, a business might want to hire an accountant to prepare and file the forms.

The different ways a business can prepare Form 1099-MISC include:

• Fill out paper forms: Order blank forms from the IRS for free; be sure to get Form 1096 in addition to Form 1099-MISC; fill out the forms using a computer or typewriter, then mail to the IRS and your contractors
• Download PDF forms: Use the downloadable Form 1099-MISC to prepare the copy you send to contractors and vendors; download the 2018 version of Form 1099-MISC from the IRS website, then type in information on-screen, and print and mail to your vendors
• Use accounting software: Some accounting software programs can prepare, print and e-file Form 1099-MISC; for example, see How to Complete 1099 Forms in QuickBooks
• Use payroll software: Some payroll software programs can prepare Form 1099
• Use form 1099 software: There are a handful of desktop and Web-based software programs for preparing and e-filing Form 1099
• Hire an accountant: Tax professionals can prepare and e-file your 1099 forms in addition to your income tax return

How to Prepare Form 1099 in Four Steps

Preparing a Form 1099-MISC is a four-step process. First, make sure you have signed Form W-9 from your contractors. Second, compile the information needed from your accounting records. Third, prepare the 1099 forms. Finally, furnish copies of Form 1099-MISC to your contractors and vendors, and file another copy with the IRS.

1. Have All Independent Contractors Complete a Form W-9

Before paying a contractor for any work, it is important to have a completed Form W-9 signed by the independent contractor. Form W-9 shows information you will need for preparing Form 1099-MISC, such as the contractor’s name, address, and taxpayer identification number. Go through your records and find out if you need to request Form W-9.

The links for downloading Form W-9 are:

• Form W-9: This is the blank Form W-9; have your contractors fill this out, sign it, and send you a copy
• Instructions for the requester of Form W-9: These instructions are for businesses and cover issues, such as when to ask for a Form W-9 from a contractor

2. Track Payments Made to Independent Contractors

Businesses can keep track of payments made to contractors and vendors manually or using accounting software. At the end of the year, compile a report showing the total amount of payments to each contractor. Analyze this report to determine which contractors you need to send a Form 1099-MISC.

Did you know that by keeping track of payments to contractors using QuickBooks, you can then use QuickBooks to prepare your 1099 Forms for the year. Get started with QuickBooks Online and save half off for the first three months.

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3. Complete Form 1099-MISC & Submit to IRS

Once you have a report showing total amounts paid to each contractor and the Form W-9, you are in a position to prepare the Form 1099-MISC. Fill out a Form 1099-MISC for each contractor or vendor as required. After reviewing each Form 1099-MISC for accuracy, file one copy with the IRS, either by mail or electronically.

Here is what Form 1099-MISC looks like, along with a brief description of what type of payments are reported in each box:

IRS Form 1099-MISC.

Box 1. Rents

Report payments of all types of rent if $600 or more during the calendar year. This includes rent for office space, warehouse space, machine, or equipment rentals.

Box 2. Royalties

Report payments of gross royalty payments if $10 or more during the calendar year. Royalties include payments to license intangible property like patents, copyrights, or trademarks. Royalties also include fees paid by a publisher to an author or literary agent.

Box 3. Other Income

Report payments of $600 or more for prizes, awards, and certain other types of payments that do not fit into any other box on Form 1099-MISC.

Other types of payments reported in Box 3 include:

• Prizes and awards, including the fair market value of noncash items
• Payments made to a deceased employee (see page 3 of the 2018 Instructions for Form 1099-MISC)
• Payments of Indian gaming profits to tribal members (see page 4 of the Instructions for Form 1099-MISC)
• Payments for participating in a medical research study
• Termination payments to former self-employed insurance salespeople
• Punitive damages, damages for nonphysical injuries and sicknesses (see page 6 of the Instructions for Form 1099-MISC)

Box 4. Federal Income Tax Withheld

Enter backup withholding in this box. If you withheld any federal tax from a contractor, you are required to file a Form 1099-MISC, even if the payment amount is less than the threshold.

A contractor might be subject to backup withholding if, for example, the contractor did not provide you with their federal taxpayer identification number or Social Security number. This is why it’s important to ask your contractors to give you a signed Form W-9 before paying them.

Box 5. Fishing Boat Proceeds

Enter the individual’s share of all proceeds from the sale of a fishing catch. Also report cash payments of up to $100 per trip that are contingent on a minimum catch and paid for other duties performed such as mate, engineer or cook. Do not report any wages that belong on Form W-2.

Box 6. Medical & Health Care Payments

Report payments of $600 or more made in the course of business to physicians, dentists and other providers of medical or health care services. Form 1099-MISC for box 6 amounts is sent not only to individuals and partnerships but also corporations and LLCs.

This box also includes payments from medical and health care insurers issued to health care providers. You are not required to include payments to pharmacies for prescription drugs.

Box 7. Non-employee Compensation

Report payments of $600 or more made to a non-employee. In general, businesses report payments to attorneys, accountants, and independent contractors in this box. This box should include fees, commissions, prizes and other compensation paid for services performed by a non-employee.

Normally, report non-employee compensation paid to individuals and partnerships. Payments to attorneys and lawyers, however, are reportable on Form 1099-MISC, even if the amount is paid to a law firm organized as a corporation.

Box 8. Substitute Payments in Lieu of Dividends or Interest

Report payments of $10 or more that are substitute payments in lieu of dividends or tax-exempt interest. Stockbrokers and financial institutions report substitute payments when dividends or tax-exempt interest is received on a security while those securities were on loan.

Box 9. Payer Made Direct Sales of $5,000 or More

Place a tick mark in box 9 if your business sold $5,000 or more of consumer products to an individual or partnership for resale in a nonretail environment. Typically, this is for Amway distributors and similar direct sales networks.

Box 10. Crop Insurance Proceeds

Insurance companies use Box 10 to report crop insurance proceeds of $600 or more paid to farmers. However, this amount does not need to be reported if farmers informed the insurance company that expenses have been capitalized for tax purposes.

Boxes 11-12. Blank Fields

No information is required in these two boxes, so leave them blank.

Box 13. Excess Golden Parachute Payments

Enter any excess golden parachute payments in this box. In general, an excess parachute payment is any amount that exceeds the average compensation for services in the individual’s gross income over the most recent five years. For more details, refer to page 8 of the 2018 Instructions for Form 1099-MISC.

Box 14. Gross Proceeds Paid to an Attorney

Report payments of $600 or more for gross proceeds paid to an attorney or law firm. Gross proceeds usually represent settlement amounts.

Payments for services rendered by an attorney are reported in Box 7 instead.

Box 15a. Section 409A Deferrals

In general, businesses do not have to complete Box 15a. Section 409A refers to certain types of nonqualified deferred compensation plans. For more details, please refer to page 9 of the 2018 Instructions for Form 1099-MISC, and IRS Notice 2008-115.

Box 15b. Section 409A Income

Report amounts deferred as part of a nonqualified deferred compensation plan that is includible in the taxable income of a non-employee. This same amount should also be included in the Box 7 amounts. Do not use this for deferred compensation for employees: that goes on Form W-2 instead. See the IRS’s Instructions for Form 1099-MISC for more details.

Boxes 16-18. State Information

These boxes need to be completed for those businesses who are required to file copies of Form 1099-MISC with state tax departments.

4. Provide Form 1099 to Independent Contractors & File With IRS

Provide one copy of Form 1099-MISC to each contractor or vendor and file all Forms 1099-MISC with the IRS. Send out these 1099 forms after you review them for accuracy and completeness. Businesses hand-deliver, mail, or electronically send Form 1099-MISC to their contractors. When filing with the IRS, either mail in paper forms or electronically file them.

Tips for filing Form 1099-MISC with the IRS include:

• Using the downloadable PDF: You can download a Form 1099 PDF for preparing copies for your contractors and records
• Use the official “red” version for mailing to IRS: The IRS strongly prefers that businesses use the official version of Form 1099-MISC, which is printed in red ink; this makes it easy for the IRS to scan into their systems; you can order the official version of Form 1099 for free on the IRS website
• Use software or accountant for e-file: If you prefer to file your Forms 1099, you will need to use software that can e-file the forms
• Include form 1096 when sending to IRS: Form 1096 functions as a cover sheet, telling the IRS how many 1099 forms you are filing, and other information; use the official “red” version if you are mailing in your forms to the IRS

With QuickBooks, you can e-file your Form 1099-MISC and email copies to your contractors. Get started with up to 50% off QuickBooks Online.

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Form 1099-MISC Examples

We provide two examples of how to prepare a Form 1099-MISC. Our first example is a 1099 for an outside consultant. In our second example, we describe a situation where a Form 1099-MISC is not required because the amount paid is less than the reporting threshold.

1099 Reporting Scenario #1: 1099 Form Required

Mary is an independent human resources (HR) consultant. Your firm contracted Mary to set up your human resources information systems and provide training on the system. She is an independent contractor.

For 2018, your business paid Mary a total of $50,000 for non-employee compensation. Since $50,000 exceeds the $600 threshold for non-employee compensation, your business is required to file a Form 1099-MISC.

You show non-employee compensation of $50,000 in Box 7. This means that Mary will have to claim $50,000 of taxable earnings on her tax return.

Below is a sample Form 1099-MISC that you would issue to Mary:

Example of properly prepared Form 1099-MISC for an independent contractor.

1099 Reporting Scenario #2: Form 1099-MISC Not Required

Chris is an independent QuickBooks ProAdvisor. Your firm hired Chris to set up your QuickBooks files and train you on how to use the system. Chris also reviews your financial statements every quarter to make sure that you are doing things correctly. Chris is an independent contractor.

For 2018, your business paid Chris a total of $599 of non-employee compensation. Since $599 is less than the $600 threshold for non-employee compensation, your business is not required to file a Form 1099-MISC for Chris.

How to Create Form 1099-MISC in QuickBooks in 10 Steps

If you use an accounting software program like QuickBooks Online, then you can set the program up to keep track of all payments for which a Form 1099 might be required. This will help automate your Form 1099 reporting. Setting up Form 1099 tracking in QuickBooks Online can be done in 10 easy steps.

1. Set Up the Contractor as a Vendor in QuickBooks

When setting up a new vendor in QuickBooks, it is important to complete both the Tax ID number or Social Security number field, and the checkbox underneath that says Track payments for 1099 as indicated in the screenshot below. To learn how to set up a new vendor in QuickBooks, check out our setting up a new vendor tutorial. It has step-by-step written instructions and a short video to show you how to do it.

Tip: The W9 Form that we discussed previously will have all of the information that you need to complete this setup.

Setting up a vendor in QuickBooks for IRS Form 1099 reporting.

2. Set Up an Account to Track Vendor Expenses

To keep things simple, you should set up an account called Contractor Expenses on your Chart of Accounts List. To learn how to do this, check out our Chart of Accounts tutorial. Use this account to categorize all payments that you make to independent contractors.

3. Navigate to Vendor Center

From the left-hand menu bar, select Vendors as indicated below.

A tab for the Vendor Center is found on the left-hand side of QuickBooks.

4. Navigate to 1099 Reporting

At the top of the Vendor screen, click the Prepare 1099s button as indicated below.

In QuickBooks, the link to prepare IRS Form 1099 is found on the Vendor Screen.

5. Prepare Forms 1099-MISC

From this screen, you can download the PDF document, watch the video, or just get started with preparing your 1099 Forms.

In QuickBooks, this is the first screen for preparing IRS Form 1099.

6. Review Your Company Details

From this screen, verify that your company information is correct. This information will print in the recipient portion of the Form 1099, so you want to make sure that it is accurate.

In QuickBooks, review the details for your business or company when preparing IRS Form 1099.

7. Assign Your Vendor Payments to 1099 Categories

From this screen, you want to put a checkmark next to each box that you will be reporting Form 1099 payments. Most small businesses will be using Box 7 (non-employee compensation). However, refer to the Who is Required to File Form 1099-MISC section of this article to see if any of the other boxes apply.

Once you select the appropriate boxes, then you select the account that was used to categorize these payments, such as subcontractors’ expense, as indicated below.

In QuickBooks, place a tick mark to map a specific expense account to a specific box number on IRS Form 1099.

8. Confirm Your 1099 Vendors

Review the list of vendors to ensure that all independent contractors are listed here. If anyone is missing, click the Select 1099 vendors button as indicated below to add them to the list. Be sure to double check that the address and Tax ID number or Social Security number is correct. This is the information that will be printed in the Recipient section of the small business 1099 Form.

In QuickBooks, confirm the details for each contractor.

9. Review 1099 Vendors & Payments

This screen provides you with a preview of the totals that will print on each vendor’s 1099 Form. In the upper right-hand corner, you can see the total number of vendors and the total of all 1099 forms.

In QuickBooks, confirm the amounts paid to each contractor when preparing IRS Form 1099.

10. File & Send Your Forms 1099 to the IRS & Vendors

The final step is to file your 1099s electronically or print and mail your forms. See a brief description of what each option entails below.

In QuickBooks, ch0ose between electronic filing or printing and mailing your 1099 Forms to the IRS.

What the Common Versions of Form 1099 Are

There are several varieties of Form 1099. Form 1099-MISC is the most common for small and mid-size business because this is the form used to report payments to independent contractors. Business should at least review if they need to file any of these other common versions of Form 1099.

The four most common varieties for Form 1099 for small and mid-size businesses are:

• Form 1099-CAP: Issued by corporations to report changes in corporate control and capital structure
• Form 1099-DIV: Issued by corporations and financial institutions to report dividends paid to shareholders; C-corps may need to issue this form to their shareholders
• Form 1099-INT: Issued by businesses and financial institutions to report interest payments; businesses may need to use this form to report interest paid to individuals or partnerships
• Form 1099-MISC: Issued by businesses to report non-employee compensation and various other types of payments

Form 1099 Frequently Asked Questions (FAQs)

We have discussed the general rules for Form 1099-MISC. Much more can be said about IRS Form 1099.

Questions that small business owners often ask about Form 1099 include:

Can I Print Out & File Form 1099 From the IRS website?

You can use the download version of Form 1099-MISC to fill in and print out Copies 1, 2, B and C, which are for your business and your contractors. Copy A for the IRS, however, must be ordered from the IRS, and cannot be printed using the online PDF.

The 1099 form downloads for tax years 2018 and 2019 are available now:

• Form 2018-MISC 2018 Download
• Form 2018-MISC 2019 Download

What Is the Penalty for Not Sending a Form 1099?

The penalty depends on when you file the Form 1099 with the IRS. The penalty is $50 per form if you file Form 1099 filed within 30 days of the deadline. The penalty goes up to $100 if filed by August 1, or $270 if filed after August 1 or not filed at all.

The Bottom Line

Businesses may need to file Form 1099 to report various types of payments. Businesses are required to send copies of Form 1099-MISC to the IRS and contractors if the business paid $10 or more in royalties or $600 or more in compensation to non-employees. Form 1099-MISC is due by January 31 to report payments made the previous calendar year.

If you’re in the market for new accounting software, we recommend that you check out QuickBooks Online. In addition to making 1099 reporting a breeze, it keeps track of all income and expenses throughout the year. Check out our free QuickBooks Online course to help you get your business up and running smoothly.

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