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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.

Instructions

Step 1

Payer’s information

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.

Step 2

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.

Step 3

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.

Step 4

Recipient information

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.

Step 5

Withholding information

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)

Step 6

Mailing copies

Copies must be sent to the recipient as well as to the Internal Revenue Service office.

Things Needed

• Contractors name

• Contractors address

• Social Security number

• Total amount of earnings

• Any amounts withheld for backup withholding

• Name of payee (company)

• Payees address

• Payees EIN (employer identification number)

Tips & Warnings

• The IRS prefers typed forms but they will be accepted handwritten provided they are legible.

• (per IRS Website) File Form 1099-MISC, Miscellaneous Income, for each person to whom you have paid during the year:

• At least $10 in royalties …or broker payments in lieu of dividends or tax-exempt interest …;

• At least $600 in rents, services (including parts and materials), prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish, or, generally, the cash paid from a notional principal contract to an individual, partnership, or estate.

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