1099-MISC Filing Requirements and Minimizing IRS Penalties
If you have paid someone other than an employee for their services, and that payment amounts to more than $600 over the year, then you are required by law to send them a form 1099-MISC. There are a few other instances where the 1099-MISC form applies, such as rent payment and prizes awarded. Also, fishing boat earnings and the sale of over $5000 worth of goods supplied by you to another business person will demand the filing of a 1099-MISC. In order for you to be able to claim the payment as a legitimate business expense, the IRS insists you file the form so they will know who will be claiming the payment as income. That way, they will be sure to get their share of income tax on that money.
When you hire someone who is self-employed or a sole-proprietor of their business, you should request their Taxpayer Identification Number. This number will either be their Employer Identification Number, if they have one, or their Social Security number. This information should be entered on a W-9 form and submitted to you before they start work or are paid for doing it.
You may find it to be much easier to hire an outsource payroll company to handle this part of your business operation. It will save you time, hassle and expense. Also, any errors that result in penalties will be the responsibility of the payroll company. The IRS requires anyone who has 250 or more 1099-MISC forms to file them electronically with software that is IRS approved. Copies must be sent to the payee by January 31 and another copy must be filed with the IRS by February 28 along with a 1096 form.
There are penalties for either failing to file the required 1099-MISC forms, filing them incorrectly, or filing them late. If you file them late, but within thirty days of the date they are due, your penalty will be $15 for each form. If you file after the thirty days, but by August 1, the penalty is $30 per form. If you don't file the forms at all, the penalty will be $50 per form. If the IRS can prove intentional disregard of the filing requirement, they can penalize $100 or more per form. A justifiable cause for failing to file, or a minor error might allow the penalty to be waived.
Accuracy and timeliness are very important in avoiding penalties and another reason for considering an outsourced payroll company.
About the Author:
For over 30 years, ADS has provided quality payroll services to hundreds of clients throughout New Jersey, serving both the public and private sectors, always with an emphasis on superior customer service. http://adspayroll.com/
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