The start of the new tax season is underway and many business owners with independent
contractors and/or employees on payroll will be filing Forms 1099-MISC and Forms W2 with the
Internal Revenue Service. Here are some tips to help keep you in compliance this year as it relates to
your staff:
I. Independent Contractors – Form 1099-MISC
If you have independent contractors on staff, you should have obtained Form W-9 so you can issue
Form 1099-MISC by January 31st. This form is used to report payments made in the normal
course of business for services rendered.
If you paid someone who is not your employee, such as a subcontractor, attorney or accountant
$600 or more for services provided during the year, a Form 1099-MISC needs to be completed, and
a copy of 1099-MISC must be provided to the IRS by January 31st.
Exceptions to F1099-MISC
• Generally, payments to a corporation (including a limited liability company (LLC) that is
treated as a C or S corporation).
• Payments for merchandise, telegrams, telephone, freight, storage, and similar items.
• Payments of rent to real estate agents or property managers.
• Wages paid and Business travel allowances paid to employees
• Payments to a tax-exempt organization including tax-exempt trusts
• Payments made with a credit card or payment card and certain other types of payments,
including third-party network transactions such as PayPal, Square, and others.
Exception to the Exception
The exemption from reporting payments made to corporations does not apply to payments for legal
services. You must report attorneys’ fees of $600 or more paid in the course of your trade or
business on F1099 MISC.
Consequences of Treating an Employee as an Independent Contractor
If you classify an employee as an independent contractor and you have no reasonable basis for
doing so, you may be held liable for employment taxes for that worker.
II. Employees – Forms W2 and W3
Employers must provide Form W-2 to employees who worked for you in 2019 then file Form W-3,
Transmittal of Wage & Tax Statements, with Copy A of Forms W-2 you issued for 2019 with the IRS
by January 31st postmarked. This is typically completed through your payroll service, but if you
handle payroll in-house, you are responsible for processing these forms, and ensuring that your
employees receive them by the deadline.
Having an accounting and bookkeeping system in place makes this process so much easier during
the tax filing season. It reduces the number of errors or missed deadlines that can take place which
can trigger penalties and interest and unwanted attention from Uncle Sam.
If you need assistance determining if you are responsible for these tax compliance items, or you
just want to up-level your accounting in 2020 then schedule a complimentary strategy session with
me today.
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