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  • Stubbuilder
  • Jun 6, 2024

Guide to Creating a 1099 Pay Stub

It is usual for small business owners to assign tasks to outside parties. If these third parties are freelancers and you buy them goods or services at a cost of $600 and over, then you are supposed to prepare both a 1099 form and a 1099 pay slip as per IRS regulations. Budgeting and tax compliance are the main reasons why a 1099 paycheck stub becomes essential during these times.

In this blog, we will discuss creating a 1099 pay stub and more on it later. Read more to learn more. Let’s get started.

What is a Pay Stub?

Employees give out pay stubs, which help to break down the gross pay received before taxes and the tax deductions; this leaves the net income for an employee. These should often indicate how much was taken off through deductions such as taxes or health insurance contributions.

What is a 1099?

The IRS utilizes a 1099 Form as a tax information form for various transactions. This includes 1099-A forms, which are used in real estate transactions, 1099-DIV forms, which are used if a company pays dividends to its investors, and even 1099-C forms for instances where the Government has forgiven debt.

Before 2020, 1099-MISC was the most popular 1099 form as it was used by businesses when they paid contractors; this happens quite often. This appeared in box 7 of that form as “Non-Employee Compensation”.

The IRS made a change in 2020, introducing a specific form for non-employee compensation reporting: The 1099-NEC. General non-employment compensation reporting now requires the use of a 1099-NEC form for the 2020 tax year.

1099 MISC V/S 1099 NEC

If you are familiar with the old 1099-MISC forms, the new NEC should not give you trouble at all; rather, it is more simplified in operational terms. In the out-of-date 1099-MISC form, the non-employee compensation was reported at box 7 out of many other irrelevant small boxes if one was only concerned about paying a contractor.

The new form 1099-NOE is easy to complete. In essence, you should key in your business data, the information of the contractor, and the amount that you paid them, in addition to deducting any other payments made. Also, the NEC simplifies the process of paying contractors and non-employees by eliminating various inconveniences.

Difference Between a 1099 MISC and a 1099 NEC

1099 MISC:

  • In no more extended usage for payments made to independent contractors.
  • Ranging from rent to fishing boat proceeds to golden parachute payments, Miscellaneous payments are what the Miscellaneous payments are used for.

1099 NEC:

  • Simple form.
  • Only one purpose: to report payments to non-employees.
  • It is required for reporting contractor payments as of tax year 2020.

How To Fill Out a 1099-NEC Form?

W-9 Forms

The W9 form needs to be filled out by the 1099 employee before you let the contractor complete any services; on it, you will find the contractor’s information to use in completing 1099s.

The contractor will present a taxpayer identification number (TIN) as well as other contact information for business or personal purposes. The TIN can be assigned to the company on an entity basis or be the contractor’s social security number.

Order Forms, Set Up Your Software

After finishing the contract and paying the contractor, you should send them their 1099-NEC. Copy a copy b, and copy c are where you will find the 3 copies of the 1099 forms, respectively. Official versions of copy A must be ordered if you are filing on paper – you can’t just download and print it from the Internet because IRS document scanners do not accept this method.

You can obtain Copy B for the contractor to complete their IRS return from the Internet. The same goes for Copy C, which you will also retain. In case you are using the IRS online filing system, there is no need to order official forms; however, if you want to write 1099s by hand, it means ordering from the IRS or other suppliers.

Filling Out a 1099 Form

  • Filling out Payer and Recipient Information: When you earlier gathered the W-9, here is the point where you’ll need it. Use the contractor’s contact information and TIN in the columns labelled “Recipient Name” and “Recipient TIN”, respectively. The address should be their address, not yours. Input your tax ID in the box provided for “payer TIN.” If you had gotten a W-9 from the freelancer, this step would be easy.
  • Compensation and Tax Withholding: The amount paid to the independent contractor for “non employee compensation” should be entered as input. 1099s should only be issued if you exceed $600 to the non-employee.\n\n These boxes are filled where taxes are to be withheld on behalf of the contractor. It is a rare scenario but it is very similar to how employee taxes are withheld from their paychecks.
  • Send Copy A to the IRS: When you are filing on paper, do not forget to mail copy A of the 1099 form. Conversely, it ought to be understood that even though one may decide to handwrite their 1099 copy A as they file on paper, there is a need for it to be done on the official purchased form before anything else can proceed; otherwise, it will not be accepted electronically during preparation process by Internal Revenue Service. Instead, do the following if you would instead send it electronically: go over the IRS web-based submission resource and post it there.
  • Send Form 1096 to the IRS: Submit Form 1096, in addition to the 1099, when filing on paper. You use checkboxes in Form 1096 to indicate which forms of information returns you are sending. Consider only one 1099-NEC or MISC when sending; check that box before enclosing and sending it out. It enables the IRS to double-check the receipt of requisite forms and avoid missing anything necessary.
  • Send Copy B to the Independent Contractor: You can download and print Copy B without having to buy any official form from any supplier. The independent contractor will use this just for information as he prepares his taxes for the next year.
  • Store Copy C for your Records: It is best to keep all the copies of the 1099s you have paid out. This way, we can have all the necessary information on file when the contractor loses theirs or when the IRS comes knocking.

Conclusion

The tax code is complicated, yet filling out Form 1099 does not require much knowledge. Being in the know regarding schedules and record keeping is essential if one wants to avoid being punished by the law or having a poor relationship with their self-employed person. Using Free Check Stub Maker, it’s now simpler than ever before to create a 1099 pay stub.