How do I know if I need to report it?
Alright if they aren’t an employee, and they are an independent contractor, yes you do have to report it if you meet certain thresholds.
- Was the amount over $600?
- Was the payment to an individual or an entity that is not incorporated?
If you answered yes to the two questions about, then you need to file a 1099-Misc for the payment.
To do that you need info from the person you pay. Usually, you collect this info before you pay the person via a W-9, but if you didn’t you should now:
- SSN Or EIN
- Total amount paid
You have Jane do some website work for you. She is a freelancer and it costs you about $750.
The incorrect way to do it:
You wrote her a check in 2016 for $750.
The correct way to do it:
Ask for a W-9. Once you received the W-9 enter the data in your accounting software. Then cut the check to Jane, once you get her invoice.
Now it is January and you are ready to the Form 1099-Misc for Jane for the $750.
You can file them on paper or you can use software, just keep in mind the deadline. They are due JANUARY 31st, 2017 for non-employee compensation. Do not file them late with the IRS, or the copy that you need to provide to the person that you paid.
As always consult your tax advisor.
TL;DR: If you paid someone over $600, you need to file the 1099-Misc ASAP.