Did you as a small business pay another person or unincorporated business more than $600 total in the last year for services rendered? You may have to provide them a 1099-MISC form.
Here are the specific rules as laid out in the official IRS Form 1099-MISC Instructions [pdf]:
The Internal Revenue Service (IRS) requires businesses (including not-for-profit organizations) to issue a Form 1099 to any individual or unincorporated business paid in excess of $600 per calendar year for services rendered. This is required whether these payments are spread out over the course of the year or are paid in one lump sum payment. The most effective way to obtain the information needed to prepare the Form 1099 is by requiring that an IRS Form W-9 be completed prior to any payment being made. The penalty for failure to file Form 1099 can be as much as 50% of the amount paid for services.
Note that last sentence: The penalty for failure to file Form 1099 can be as much as 50% of the amount paid for services.
The 1099-MISC forms must typically be sent out to independent contractors by January 31st following the end of the tax year in which you made the payments. (As 1/31/16 is a Sunday, the deadline is February 1st for 2016.) You must also file a Form 1096 and submit the information to the IRS by March 31st.
If you’ve got your own accountant or payroll service, then you can pay them to generate the proper forms and send out these 1099s. However, I have done it myself as well, it is not very difficult. Here are your options for generating and issuing a Form 1099:
- You can order physical, blank 1099 forms from the IRS for free, but it may take up to 4-6 weeks. Here is the IRS.gov order page. You’ll need at a minimum, Form 1099-MISC and Form 1096. You then print it out yourself and mail it. Cost: Free.
- You can buy physical, blank 1099 forms at an office supply store like Staples or OfficeMax. You then print it out yourself and mail it. Cost: ~$30 for a kit of 24.
- You can order physical, blank 1099 forms online. Here is the top-reviewed blank 1099-MISC kit from Amazon.com which includes multiple copies, envelopes, and 1096 forms. You then print it out yourself and mail it. Cost: ~$22 shipped for a kit of 25. You can get it with the printing software for about $35 shipped.
- You can use a 3rd-party online service where you fill out the information online and they’ll create a PDF for you. The most popular is Intuit’s version (they make TurboTax). You will still need to print it out and mail the 1099 forms to your independent contractors, but they will e-file the information to the IRS. Cost: ~$15 for up to 3 forms, $4 each additional.
- You can use 3rd-party desktop software where you will be guided as with tax software as to how to fill out the appropriate forms. The most popular is TurboTax for Business (not the personal edition), which will provide guidance and generate both 1099-MISC and W-2 payroll forms for you. It comes with a 60-day money back guarantee from Intuit, so if it doesn’t work to your satisfaction, you can return it within 60 days for a full refund. Cost: ~$105 for tax filing software which includes unlimited 1099 and W-2 forms.
You can fill out the physical forms with a typewriter or printer. There are various ways to get the numbers “set” correctly for printing including some free homemade templates out there, but I can’t vouch for any specific one (they may contain viruses or malware, etc). You can also buy forms + software packaged together to fill them out. Don’t forget to fill out the red copies for the IRS.
Note that you cannot use the blank 1099 PDFs that you find online; they are only examples.
Finally, remember that your first job is to get a W-9 form [pdf] filled out by the person you paid, so that you’ll have their Tax ID to enter onto your tax forms.