How to Make a 1099 for Contract Workers

Businesses must provide contract workers with tax forms in January.

Businesses are required to provide a 1099 form to all contract workers at the end of each tax year. The 1099 must state the amount of money paid to the contract worker by the business as well as any tax withheld. Do not confuse a contract worker with an employee. An employee is a person who works full time and for whom you withhold payroll taxes and pay workman's compensation for. A contract worker is anyone who does business for you on a contract or freelance basis. You do not pay workman's compensation or payroll taxes on contract workers. If your business utilizes contract workers, you are required to issue a 1099 for each contract worker come January.

Instructions

1. Obtain copies of form 1099 and form 1096 from the Internal Revenue Service. Call the IRS at 800-829-3676 to request copies. The forms are also available online, but you cannot file the 1099 or 1096 forms you print from the IRS website because they are not scannable. The IRS sends you scannable forms. If you attempt to file any 1099 or 1096 form that is not scannable, you will incur fines of $50 per form.

2. Complete form 1099 for your contract worker. Provide your name, address, phone number and employer identification number in the boxes marked for that information on form 1099. Include the contract worker's federal employer identification number or Social Security Number, the worker's name, address and account number -- if applicable.

3. Calculate how much you paid the contract worker and enter the wages in the correct boxes on form 1099. Wages on a 1099 are paid for rents, royalties, fishing boat proceeds, other income, non-employee compensation, medical and health payments, payments in lieu of dividends or interest, crop insurance proceeds, direct sales of more than $5,000 or proceeds paid to an attorney. Determine which of these wage types you paid to the contract worker and input the total amount in the appropriate box.

4. Enter any income tax withheld in box four. If state taxes and/or withholding apply to the 1099, include that information in boxes 16-18.

5. Send Copies 1, 2 and B to the contract worker at the address you have listed on the form. You must mail these forms on or before January 31. Keep Copy C for your records.

6. Mail Copy A of form 1099 to the Internal Revenue Service. You must mail Copy A along with form 1096. To fill out form, 1096 you must enter your business name, address, telephone number, business contact, email address, fax number, employer identification number and the total number of 1099 forms you issued to contract workers.

7. Mail form 1096 and Copy A of form 1099 to the IRS at the address listed on form 1096 for businesses located in your state.

References

• California Department of Industrial Relations: Independent Contract versus Employee
• Internal Revenue Service: Form 1096
• Internal Revenue Service: Form 1099