The 1099-NEC: What is It? When is It Due? And Do I Need to Submit Any?
Tax season is here! Most businesses simply dread the arrival of tax season; and I mean, how could you not? There are so many different pieces to keep up with and the deadlines are simply, professional ninjas. If forgotten about, you are at the mercy of the Internal Revenue Service, and no one wants to be in that predicament. All that is to say, the first major deadline is January 31st. It is time to submit 1099s.
What is a 1099? What is the deadline?
A 1099 tax form is a formal document that serves as a record that a person (or business entity) that is not your employer (W2 employer) gave or paid an individual or their business, known as a contractor, for some form of service or project. Whoever is the payer to the individual or their business completes and files 1099 forms and sends copies to the person or entity that they contracted and to the IRS. Payers use this form to complete their business taxes by identifying their payments to the contractor as expenses of their business. The contractor uses the submitted 1099 to account for the money that they were paid on behalf of themselves or their business on their income taxes. 1099 forms must be completed and submitted by paying entities or individuals at the beginning of the tax season. This year, the deadline is January 31, 2023.
Who receives 1099s? What are the penalties if you do not submit the 1099s?
Not everyone has to submit or receive 1099s and there are numerous types of 1099 forms used for various reasons. If you would like a more extensive list and details, check out the IRS website. However, we will stick to the form that aligns with self-employed persons (Independent Contractors and/or Freelancers) for the sake of this article. Any person who worked for you and received payment but was not on your payroll should receive a 1099 form from you or your business; a 1099 NEC is the form used for this purpose. In order to send out 1099s to your contractor and the IRS, you must have the contractor's W9 form, which outlines the vital information needed by the IRS. Most contractors use their 1099s to complete their tax returns just like you, so it is imperative that they are submitted properly and on time.
If you forget to submit your 1099s, the IRS will charge penalties “for each 1099 you fail to correctly file on time and for each payee statement that you fail to provide” (Internal Revenue Service, “Information Return Penalties”, 2023). On top of the initial charge, the IRS also charges interest on their penalties. The interest varies by penalty type, as well as amount, and continues to accrue interest until the balance is paid in full. Simply put, if you fail to submit your 1099s by the deadline or file them incorrectly, you will be losing money.
While it may be possible for Independent Contractors and Freelancers to complete their taxes without using 1099s, it is nearly impossible for you as the employer to properly complete yours.Though this may seem like a small tedious task, getting the forms done and submitted on time can save you time, money, and a serious headache. Do not let this deadline pass you by. January 31, 2023 or you will have to face IRS tax penalties. If you feel you can not accomplish this on your own, it is ok to ask for help. You may reach out to our ServiTax Team for us to guide, assist or just file them on your behalf.