Contract workers, or freelancers, are workers who are hired on a project-by-project basis. The IRS 1099-MISC form is used by employers to document the earnings of contract workers.
More and more businesses are hiring contract workers because their costs are generally lower than W-2 employee costs.
This is because contract workers’ earnings do not require deductions of social security, income and state tax, unemployment, health insurance, or any other type of deferred compensation. Contractors are required to calculate any tax deductions and pay any taxes owed to the IRS on their own.
At the end of the tax year, the 1099-MISC form is sent by employers to any contractors hired during the year, and it is also submitted to the IRS for income tracking purposes.
Some examples of workers that would receive a 1099 form at the end of the tax year include freelance writers, artists, contract IT specialists, temporary laborers, and more.
Form 1099-MISC is a 5 page form where Copy A is sent to the IRS, Copy B is given to the payee or recipient and Copy C is retained by the filer or payer. Copy A has the look and feel of a normal sheet of paper while the other copies are almost like tissue paper. The 5-pages are connected together by a perforated edge.
The IRS requires that Copy A be submitted on their special paper with red ink if you are submitting less than 250 filings a year. Otherwise, the IRS encourages you to submit electronically. Filing Information Returns electronically is very cost-effective, is easier than filing on paper, and is more accurate. Filing status is available within 2 business days for Forms 1098, 1099 and W2-G and electronic filers receive a later due date for most returns. When you file electronically, you are exempt from using pre-printed forms. You can just print the Copy B on plain paper with black ink, email a PDF file to all recipients, fax Copy B to the recipients or just print it out and hand it to the recipient.
The 1099-MISC form is the most popular form to report contract worker earnings. The other variations of the 1099 form are used to show interest and other types of earnings.
