A 1099 contractor, or, more accurately an independent contractor, is a legal and tax-related term used in the United States to refer to the type of worker that contracts his or her services out to a business or businesses. The "1099" refers to the Internal Revenue Service (IRS) form that an independent contractor receives stating his or her income from a given business in a given tax year.
A 1099 contractor is not an employee of the business or businesses with which he or she works, instead he or she is an independent contractor, or consultant, who is considered to be self-employed. Being a 1099 contractor can offer extraordinary freedoms, but, like most things, it can be considered to have some downsides as well.
But with new proposal to issue 1099 even for goods purchased is aiming at tracking unreported income.
The stealth change radically alters the nature of 1099s and means businesses will have to issue millions of new tax documents each year.
Right now, the IRS Form 1099 is used to document income for individual workers other than wages and salaries. Freelancers receive them each year from their clients, and businesses issue them to the independent contractors they hire.
But under the new rules, if a freelance Worker buys a new iMac from the Apple Store, they'll have to send Apple a 1099. A laundromat that buys soap each week from a local distributor will have to send the supplier a 1099 at the end of the year tallying up their purchases.
The bill makes two key changes to how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations.
Taken together, the two seemingly small changes will require millions of additional forms to be sent out.
But there is a pretty heavy administrative burden," particularly for small businesses without large in-house accounting staffs.
Eliminating the goods exemption could launch an avalanche of paperwork, he says: "If you cater a lunch for other businesses every Wednesday, say, that's a lot of information to keep track of throughout the year."
The IRS estimates that the federal government loses more than $300 billion each year in tax revenue on income that goes unreported. Using 1099s to document millions of transactions that now go untracked is one way to begin to close the gap
This will give very good boost for Accounting outsourcing.
But Senate Rejects Change On Tax Reporting The mandate requires businesses and others to issue Form 1099s to vendors from whom they purchase goods totaling $600. The provision has garnered opposition from a broad coalition of businesses.