How to Prepare a 1099 for a Contract Worker

An independent contract worker is one who performs needed tasks for your business but is not a regular employee. Federal and state taxes are not withheld from a contract worker’s pay, so you will not be issuing him or her a W-4 tax form at the end of each fiscal year. You’ll instead need to issue this kind of worker a 1099 form, which is a tax form detailing his or her total non-employee compensation.

<strong>Obtaining the 1099-MISC Forms</strong>

Preparing a 1099 form is an IRS requirement for every contract worker you’ve paid more than $600 for the year. These tax forms are available from several sources, including the IRS website and your local office supply stores. You can also order 1099-MISC forms by toll-free telephone from the IRS.

<strong>Filling In Basic Information</strong>

If you already have an Employer Tax ID number, fill this in first on each 1099-MISC form. You can alternately enter your Social Security number if you’re using this in place of your Employer Tax ID number. Your next needed step is to fill in the contract worker’s social security number and other information from the W-9 form you first issued him or her upon hire.

<strong>Adding Non-Employee Compensation</strong>

In Box 7 of the 1099-MISC form, fill in the total amount of non-employee compensation you paid to the contract worker. In either Box 4 or Box 7, you’ll then need to enter any state or local taxes you withheld from the contract worker’s pay, though this step only applies in a couple of situations. The first is if the contract worker failed to provide you a W-9 form. The other case is if the contract worker is a non-US citizen who is in the country on a temporary work visa. In either situation, you’re expected to withhold 28-30 percent of these contract workers’ earnings. Be sure you’ve filled out all required contact information for both your business and for each of your contract workers who requires a 1099-MISC tax form.

Once you’ve completed all the needed boxes on each 1099-MISC form, mail it to each of your contract workers no later than January 31 following the most current tax year. By the 28th of February, you’ll also need to submit Copy A of each 1099-MISC form to each worker’s home tax revenue office if applicable.