The Internal Revenue Service requires all businesses to document non-employee payments larger than $600 made to individuals or other businesses during the year. A 1099 form, detailing the amount of money paid, the type of payment and the payee's name, address and tax information, is sent to the payee and to the IRS.
The 1099 form notifies the IRS of money paid to other individuals or businesses. After the deadline for filing taxes, the IRS will cross-reference the amount you recorded on the 1099 form with the amount of income reported by the individual or business who received the form. If an individual claims less income than is reported on the 1099 form, it may trigger an audit.
You must record all payments made between Jan. 1 and Dec. 31 of the previous year soon after the year ends. Mail the payee's copy of the 1099 form to arrive before the end of January. After compiling and sending the forms to everyone you paid more than $600 during the year, you will file a 1096 form with the IRS, listing the total amount you paid to all 1099 recipients. You must file the 1096 form by the end of February.
If you have more than 250 recipients of the 1099 form, the IRS requires you to file the information electronically or magnetically. If you have fewer than 250 recipients, you may mail your 1096 return. If you must file electronically, you may register for a free account with the IRS on its site and upload your return.
The IRS produces different 1099 forms for specific classifications. For example, a 1099-MISC form documents payments made to independent contractors, real estate disbursements, tips and proceeds from crop sales. The 1099-DIV records dividends and distributions and the 1099-INT documents interest payments. You may order the appropriate forms, at no charge, from the IRS.
You may download sample 1099 forms and the instructions for completing the form from the IRS website, but you may not use these forms to send to payees or to file your return with the IRS. In an effort to reduce fraudulent returns, the downloadable forms are not reproducible by scanning. The IRS may assess a $50 fine if the wrong form is filed. Order your forms early.
You need not file a 1099 form for payments made during the previous year to a corporation, even if you paid them more than $600. Corporations are subject to different taxation requirements.