Rules for Determining Who Gets a 1099

by Melly Parker ; Updated September 26, 2017

The 1099 form from the Internal Revenue Service is a way of reporting income that isn’t paid by an employer. It helps the IRS determine who didn’t have taxes withheld from income during the year so they can tax the person appropriately. If you pay wages or make other payments to people during the year, you may be required to issue a 1099.

Freelance Workers

Freelance workers are those who aren’t employed by a client but who are paid by a client. Since clients aren’t required to withhold federal, state, Medicare or Social Security taxes, freelance workers must pay quarterly taxes to meet their federal tax obligations. At the end of the tax year, freelance workers use the 1099-MISC to determine the income reported on their Schedule C, a supplement to tax form 1040.

1099 for Wages

If you paid wages for work done and the amount was more than $10, you must issue a 1099 to the person you paid. Wages include things like royalties and payments for services like contracting, writing or graphic design. The worker can do a W-9 form to give you the identifying information you need to issue the 1099. Require the worker to fill out a W-9 when she accepts the job as part of the hiring process so you have it on file.

1099 for Other Payments

If you pay for someone’s rent, medical payments or crop insurance or buy fish from an aquatic salesperson and the total is more than $600, you must issue the person a 1099. If you pay more than $10 to a broker, you must give him a 1099. Payments of more than $600 to an attorney mean you must give the attorney a 1099. More than $600 paid in awards or prizes to a person means you need to give her a 1099. Fishing boat proceeds, buying more than $5,000 in goods for resale at a place that isn’t a permanent retail establishment and cash paid from a notational principal contract to any entity must be reported with a 1099. Finally, if you kept anyone’s taxes under the backup withholding rule, issue him a 1099.

Penalties

If you fail to file the 1099-MISC with the IRS by the deadline, severe penalties can be imposed. A fine of up to $250,000 or 28 percent of the money that wasn’t reported can be taken from a business that doesn’t file the 1099. For individuals who receive the 1099 and fail to file, all withheld taxes and penalties apply. When you fail to pay your income taxes, your wages, Social Security benefits and refunds can be withheld. You are also in danger of having property seized and sold.

About the Author

Melly Parker has been writing since 2007, focusing on health, business, technology and home improvement. She has also worked as a teacher and a bioassay laboratory technician. Parker now serves as a marketing specialist at one of the largest mobile app developers in the world. She holds a Master of Science in English.