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If a business pays a non-employee, such as an independent contractor, $600 or more in a year, that business must file Form 1099 Miscellaneous, and the payments may be subject to backup withholding.
The total for the calendar year goes in Box 7. The payer must provide the 1099 to both the independent contractor and the IRS. The 1099 Miscellaneous must be provided to the independent contractor by January 31st. If it’s filed on paper, it’s due to the IRS by February 28th. If it’s filed electronically, it’s due later — on March 31st.
There usually are not any withholding requirements for these reportable payments. However, there are two conditions where backup withholding applies.
First, if the independent contractor fails to provide a TIN — or Taxpayer Identification Number — or provides one that is obviously incorrect — for example, it has the wrong number of digits or includes an alpha character — the business should withhold tax.
The second condition involves the IRS’ notifying the business that the TIN the independent contractor provided is incorrect. The payer would then have to send a notice to the independent contractor to try to obtain a corrected TIN and may have to backup withhold on future payments.
The payer reports any backup withholding on the 1099-MISC Form in Box 4.
If a business does not backup withhold when required, the payer, or business, may be liable for the tax he was required to withhold from the payee, whether or not he actually withheld it.
Businesses that file information returns with the IRS after the due date, or with incorrect or incomplete information, may be subject to a penalty of $100 per incorrect or incomplete 1099 Miscellaneous, up to a maximum of $1.5 million.
Details are in the instructions for Form 1099 and Form W-9, Request for Taxpayer Identification Number and Certification.
These forms and more information about backup withholding are on the IRS website at www.IRS.gov.
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