For businesses worrying about W-2 forms, don’t forget about 1099

December 17, 2012

As the recent recession spurred a rise in the use of independent contractors or freelancers by small and large businesses alike, filing the correct tax form on behalf of employees is becoming increasingly important. In general, a 1099 tax form is issued to freelancers who earn over $600 in one year.

There are over 20 different forms of 1099 forms, with 1099-MISC being the most common. While most companies are aware of the importance of W-2 forms, not filing the correct 1099 form or not issuing such a form at all, especially with the rising number of freelancers, can have large consequences on a business.

Tax lawyer Robert Wood recently wrote an article for Forbes detailing the reasons businesses need to be aware of the importance of 1099 forms. Though contractors don’t file 1099 forms with tax returns, the IRS still receives a copy of each form.

“And IRS computers are whirring to match each dollar with your Social Security Number. You should keep a keen eye on every one so your tax return is accurate,” Wood wrote. “Every year the IRS sends millions of tax notices based on matching 1099s asking for more money. Every other notice or audit activity is tiny by comparison.”

Wood also stresses the importance of businesses talking with contractors before they are hired to confirm the position and make sure both employee and employer are on the same page – before the 1099 is filed.

A helpful tool is a 1099 processing service to manage forms and facilitate communication between employees and employers. An electronic processing system can help businesses file both W-2 forms and 1099 forms for contractors efficiently so there are no surprises when reporting to the IRS.