How to prepare a 1099 for a contract worker
The Internal Revenue Service (IRS) requires that those who hire freelance contractors are required to report their earnings on an annual basis. Each contractor’s earnings must be reported if they exceed $400. The IRS has made filing simple for those who use electronic filing or they may be filed by mail.
1099 forms are due to the taxpayer (contractor) not later than the first day of February following the tax year ended December 31. They are due to the IRS not later than the last day of February if paper filing and not later than April 12 if electronic filing is used.
The IRS uses this information to guarantee that contractors are filing proper earnings on their taxes as well as verifying employment eligibility. 1099 forms are required only for US contractors.
The first block to be filled out on a 1099 form is the information about the person (or company) making payments. This includes the name, street address, city, state and zip code. This information goes in the upper left hand block of the 1099 form.
IRS form 1099 block 3
For contractor payments, the payee must include the amount paid to the contractor in box number three (Miscellaneous payments). The full amount paid must be put into this box including any deductions that were made.
Taxpayer identification numbers
Underneath the payer’s box, the payer’s taxpayer identification number as well as the recipient’s taxpayer identification number must be included.
There are separate blocks that must be filled out to complete the recipient’s information. The blocks are (a) Name (b) street address (c) city, state, zip code.
If any amounts were withheld from payments they should be noted in the appropriate boxes. These include
Box 4 — Federal tax withholding
Box 6 — Medical or health care payments
Box 16 — State tax withheld (if this box is populated 17 and 18 must be filled out)
Copies must be sent to the recipient as well as to the Internal Revenue Service office.