W-9 & 1099 Forms Explained
Year end is getting closer and closer. My last post covered what you need to know about employee W-2 forms. This time I’ll go over the equivalent forms for non-employee contractors, W-9’s and 1099’s.
W-2’s don’t seem to be as confusing as 1099’s because business owners know that if you have an employee, they will need to have a W-2. However, it is not as easy to tell to whom we need to send a 1099. As a general rule, if in doubt, it is best to err on the side of sending a W-2. If the contractor or business don’t need it, they can always shred it.
The purpose of a W-9 is to request the proper name and Taxpayer Identification Number for each contractor you’ve worked with. This information is required in order to process their 1099 form. For recording keeping purposes, the IRS requests that W-9 forms be kept on file for 4 years, in case they or the contractor in question needs to reference it.
Here are some guidelines for whom you should fill out a W-9 and to whom you should send a 1099 at the end of the year:
- If you paid $600 or more for services rendered during the tax year in the course of your trade or business to an individual or partnership. Professional fees to an attorney, accountant, web design, etc…are included in this. Payments to corporations are included only if they are for medical, health care, legal or fishing activities.
- If you paid $600 or more in rent for office space, machines, equipment or land in the course of your trade or business.
- If your trade or business gave any prizes or awards, of $600 or more, to an individual who is not your employee.
- If your trade or business paid $600 or more in medical or health care payments to an individual, partnership or corporation.
- If you paid $600 or more in taxable fringe benefits to non-employees in the course of your trade or business.
It is best to require a W-9 before the first payment is sent out to any new contractor or business with whom you do business throughout the year so that you have all the information collected before your end-of-the-year filing.
As with W-2’s, 1099’s are now due to both employees and the IRS by January 31. Previously these forms could be submitted by the end of February or March if e-filing, but now the deadline has been moved up to January across the board.
If you have any questions, let me know in the comments! If you’re looking for someone to handle your bookkeeping, contact us at Kristina’s Abacus today!