Tax Time: 1099s for Contractor Wages Made Easy
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It's the time of year when business owners should be thinking about reporting to the IRS what it has paid to employees. While reporting full-time staff salaries is usually a straight forward part of most payroll services, part-time employee and contractor reporting can be trickier for smaller firms with limited accounting budgets.
Here's the gist: Though specifics can vary the IRS usually requires freelance employees, recurring sub-contractors or any contractors paid more than $600 yearly to receive a 1099-MISC form that must also be filed with the IRS. Filing for calendar 2012 opens this month and runs until February 28, with an extension to April 1 for electronic filers.
While working with an accounting professional is advised, the IRS has been aggressive about creating easy-to-use online resources to make 1099-MISC reporting easier. Here are three steps for reporting part-time contractor wages, plus the tools you'll need to get it done:
1. Start with the IRS's list of approved e-form filers. The IRS offers an official list of vetted third-party e-form filers -- a variety of web-based services that focus on particular forms to full-service accounting businesses that mix in e-filing as part of their products. Fees can run from a few dollars per form, to full-rate, by-hour consulting rates charged by traditional accounting firms.
Choose a service that enables secure storage of your contractors' sensitive tax information, has an easy-to-use interface and, if available, pick a firm near your area that's up to speed with local regulations.
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2. For more complex filing, consider an integrated e-tax filing solution. If your business ships a lot of forms, such as complex employer data, you might want to go with an integrated electronic filing service that syncs with your accounting tools, like QuickBooks or others. Services such as Melville, N.Y.-based IDM offer a deep list of accounting options, such as filing business forms -- including the 1099-MISC and more.
However, smaller shops can opt for a more straightforward form service such as Redwood City, Calif.-based Track1099. Prices run from $3.99 each for the first three forms and $1.99 each for the next 97.
3. Collect up to date contractor names, addresses and compensation information. Come filing time, make sure you have an updated W-9 tax ID form that confirms the name and address of each contractor you've worked with during the year. You can have contractors fax these forms to you. In some states you are responsible if you lose your contractor's identity.
Next, have the total you paid each contactor for 2012 at hand. This figure can be pulled from accounting software or business bank account tools. Then fill out the contractor's address and enter the amount paid in your online 1099 form software package. It's a good idea to confirm the basic amounts you are paying to each contractor with your accountant to confirm these expenses are being tracked properly. Then authorize payment for your forms with a credit card, and the forms are on their way.
Another bonus: You can store contractor address information with your e-form vendor, which can make next year's filing at least a step or two easier.
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