The Internal Revenue Service (IRS) makes it mandatory to report payments made for fees, commissions or contracted services for work performed within the U.S. to independent contractors on form 1099.
If you find yourself in this situation, you should be aware that payments must be more than $600 during the tax year in 2019 to the same contractor in order to be required to report.
It is worth mentioning that this is an informative form that details: the amount of the payments made, if any percentage has been withheld from that amount, and the identification data of the payment recipient.
When you decide to order a service from an independent contractor, they must provide their W-9 form, a signed contract and their tax identification number. It is essential to check that the ID provided is correct, otherwise there is an obligation to withhold 28% of the payments made. If everything is in order, there is no obligation to withhold and the obligation to pay taxes on the annual income belongs to the contractor themselves.
It is very important that you take into account that law firms are considered contractors by the IRS for these purposes, so payments made to law firms should be included in this form, even if they are legally considered corporations (LLCs).
There are variations of the 1099 forms in which other type of transactions must be included such as earned interest and dividend income, among others.
The deadline for filing the declaration is January 31, 2020. If the deadline is missed penalties may be imposed.
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All information contained in this publication is up to date on 2020. This content has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this chart without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this content, and, to the extent permitted by law, AUXADI does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this chart or for any decision based on it.