The start of a new year means many things for Colorado companies.
It is a time of excitement as new opportunities are explored, new strategies deployed, new relationships nurtured, and existing ones renewed. However, before 2015 is put in the history books, it is important to ensure proper financial and compliance reporting steps are completed. While there are several reporting and filing deadlines that need to be met, we are most often asked about IRS Form 1099. Business owners are often confused about whether they need to issue 1099s and which individuals or vendors should receive them. Given the seemingly endless number of changes to IRS reporting regulations, it is not surprising there is so much confusion on the topic. To help clients, prospects, and others understand the 1099 filing requirement, Hanson & Co. has provided a brief summary of key points below.
IRS Form 1099-MISC is used to report payments made to independent contractors that have rendered some type of service to a company in the past year. It is important to note that employees are not considered independent contractors and therefore their earnings are reported to the IRS using Form W-2.
Independent contractors are found in virtually every industry and are a common fixture in today’s business landscape. Generally, these independent workers are self-employed or are small service companies that provide a limited set of services for a company. Examples of independent workers may include cleaning and maintenance services, website developers, graphic designers, or so called “contract employees” that work on a temporary basis. The key to determining who is an independent employee is to assess if the worker is self-employed. If so, then they are classified as an independent contractor. If they are actually your employee, then they are not classified as such.
Reporting Requirements & Deadline
Companies are required to issue Form 1099-MISC to an independent contractor or unincorporated business if they earned $600 or more per year. If the amount totals less than $600 per year, no form needs to be issued.
There are two important reporting deadlines to follow in order to be in compliance with IRS regulations:
Reporting to Contractor – The completed 1099-MISC must be mailed to qualifying independent contractors no later than February 1, 2016. Normally the deadline is January 31st but that day falls on a weekend so the IRS has provided a one-day extension to the next business day.
Reporting to IRS – The deadline to submit paper versions of Form 1099-MISC is February 29th, 2016 with electronic versions being due no later than March 31, 2016.
The penalties for noncompliance can be severe. Generally speaking, the penalty amount varies from $30 to $100 per form with a maximum total penalty that can be imposed of $500,000. The amount of the penalty depends on how far past the deadline a company issues the form. In extreme cases where a company completely disregards their filing responsibility, the IRS may impose a fine of $250 per statement with no maximum.
Although it may seem like a minor reporting responsibility, it is important to understand Form 1099-MISC reporting and filing obligations and partner with a firm that can guide you through the process. If you have questions about 1099 reporting, Hanson & Co. wants to help! For additional information contact us at (303) 388-1010, or click here to contact us. We look forward to speaking with you soon.