Who Is Classified As A 1099 Employee?

By James Wilson

Jan. 03, 2020

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Have independent contractors employed by your business? You're not alone. Recent data suggest that freelancers and independent contractors make up 34% of the American workforce. If you have these vendors on staff, you must understand the different tax forms and requirements these individuals have.
Keep reading to learn about 1099 employee classification and who on your team needs to get these tax forms.

Consider The Total Payment

The IRS requires that anyone who received more than $600 in an annual year needs a 1099 form. Make sure that you have meticulous documentation and calculation, especially if you aren't sure if the contractor met that quota over the year.

Understand The Corporation

This is where things can get confusing, but we're here to straighten it out for you. If the individual is a sole proprietor, partnership or LLC, he is considered a 1099 employee and needs a form. On the other hand, S corporations or LLCs taxed as S or C corporations do not require a 1099.

Other Exceptions

As mentioned, you don't need to send a 1099 to vendors operating as S or C-Corporations. The only exception to this is if you've contracted a lawyer. All lawyers need 1099 forms, even if they're incorporated. You also don't need to provide a 1099 for merchandise, freight, or storage sellers.
Finally, you don't need to send a 1099 for payments of rent to or through property managers or real estate agents.

Click Here to Create Your Form 1099-Misc in Less Than 2 Minutes

Use a W-9

Sometimes, you cannot locate all the necessary information to generate and issue a 1099. Smart business owners often request independent contractors to fill out a W-9 form before rendering any payment. This form provides you with all the necessary contact and mailing information, and it also provides you with the status of their corporation type.

When In Doubt, File

The IRS won't penalize you for filing a form if it turns out that you don't need one. With that said, they definitely can penalize you if you don't fill one out but were supposed to. Remember, the deadline for sending an employee a 1099 is February 1 each year. That's the same deadline for sending out W-2 forms.
The penalty for missing the deadline can range from $30-$100 per each form and maximum fines can set you back up to $500,000 per year!

Also read: The Difference Between Forms 1009 and W2?

The 1099 Employee: Final Thoughts

All business owners have an inherent responsibility to make sure that everyone is getting their appropriate tax forms. If you neglect this duty, be prepared for the wrath of the IRS! Ready to get started on preparing your 1099 forms? Check out our 1099 generator today. It's thorough, advanced, and will take you less than 2 minutes to complete! In addition, you can generate your own paystubs with our professional paystub generator.

Also read: Do 1099 Employees Get Pay Stubs?

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Frequently Asked Questions

Typically, 1099 employees do not receive benefits such as health insurance, retirement plans, or paid time off from the companies they work for. They are responsible for managing their own benefits.

No, 1099 employees are not subject to minimum wage laws as they are not considered regular employees. They negotiate their pay directly with their clients.

Yes, a person can have both W4 employment income and 1099 independent contractor income during the same tax year. They will need to report both types of income on their tax return.

1099 employees are required to pay their taxes on a quarterly basis through the Estimated Tax system. They must calculate their expected tax liability and submit payments to the IRS.

A W4 employee is a regular employee who has taxes withheld from their paycheck by their employer. A 1099 employee is responsible for calculating and paying their own taxes, including self-employment tax.

A 1099 employee is an independent contractor or freelancer who provides services to a company or client but is not considered a regular employee. They are responsible for managing their own taxes and benefits.

1099 employees need to file a Schedule C (Profit or Loss from Business) and a Schedule SE (Self-Employment Tax) along with their Form 1040 for their federal income tax return.

Independent contractors should receive a 1099 form from each client by January 31st of the following year.

Companies or individuals who have paid $600 or more to an independent contractor for services during the tax year must file a 1099 form.

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