If your business has employees, you’re either learning, or you’ve already learned, that there is additional paperwork and tax responsibilities associated with having employees. These business taxes associated with employees are known as payroll and employment taxes. As we discussed in the first blog post in our Business Taxes series, Business Taxes: Employment Taxes, there are different forms, paperwork and tax responsibilities for your business depending on which type of employee your business hires and employs.
There are two main types of employees: 1099 independent contractors and W-2 employees. To learn more about the differences between the two, check out our first post, Business Taxes: Employment Taxes. In this post, we’ll continue where we left off in the previous post, discussing the forms required of businesses hiring 1099 independent contractors.
In the previous post, Business Taxes: 1099 Independent Contractors, we discussed Form W-9, which a business is required to have 1099 independent contractors complete in order to acquire their taxpayer identification number. We also introduced Form 1099-NEC, which we’ll continue discussing here. If you haven’t read our previous post about the payroll and employment taxes required if a business employs 1099 independent contractors, you can read it here: Business Taxes: 1099 Independent Contractors.
Business Taxes for 1099 Independent Contractors: Form 1099-NEC
As we mentioned towards the end of the last post, as of January 31st, 2021, according to the IRS Page Forms and Associated Taxes for Independent Contractors, “Form 1099-NEC is used by payers to report payments made in the course of a trade or business to others for services.”
If you’re wondering what exactly counts as “payments made in the course of a trade or business to others for services,” as of January 31st, 2021, the IRS Page Forms and Associated Taxes for Independent Contractors goes on to explain in greater detail, saying, “if you paid someone who is not your employee, such as a subcontractor, attorney or accountant $600 or more for services provided during the year, a Form 1099-NEC needs to be completed, and a copy of 1099-NEC must be provided to the independent contractor by January 31 of the year following payment. You must also send a copy of this form to the IRS by January 31.”
The same page, Forms and Associated Taxes for Independent Contractors, as of January 31st, 2021, continues further, noting that “there are certain situations where a 1099-NEC is not required. These exceptions are listed in the Instructions for Forms 1099-MISC and 1099-NEC PDF.”
Properly navigating all of the paperwork and rules required to file the correct forms at the correct times with the correct amount of business taxes can be difficult or down right confusing at times. As a general rule of thumb, like the IRS page says, you should be prepared to complete a Form 1099-NEC and provide it to the independent contractor by January 31st of the following year any time your business pays someone over $600 for services not provided by an employee.
If you or your business need any help with business taxes like payroll and employment taxes, feel free to give one of the highly trained tax resolution specialists at Bullseye Tax Relief to learn about how we can help simplify things for you!