What is Form 1099, and why is it required?

IRS Form 1099 for Non-Employment Income

The 1099 form reports non-employment income to the Internal Revenue Service (IRS). Companies have to give a Form 1099 to any U.S. taxpayer (not a corporation) who received $600 or more in money (non-employment income) in a tax year.

This form is used to let the IRS know that the independent contractor has received taxable income, and the authorities can then check the record against the income reported by the contractor. 

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Note: You may be subject to penalties if you do not file Form 1099 when it is necessary.

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Which payments would trigger a Form 1099 filing requirement for a Corporation?

If your U.S. Corporation paid at least $600 for:

  • Rents.
  • Prizes and awards.
  • Other income payments.
  • Medical and health care payments.
  • Any cash paid to an individual, partnership, or estate.
  • Payments to an attorney.

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What information does the IRS need for this filing?

  • Payer Information: Your Company name, address and phone number, your taxpayer information number (either your Social Security Number or Employer Identification Number)
  • Payee information: You'll need the recipient's taxpayer identification number, name, address and phone number

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Which forms does a Corporation need to collect from contractors? (W-9 and W-8s)

To inform the IRS that the independent contractor has received taxable payments from your corporation, you must first determine which tax authorities your contractors are paying taxes to. To collect this information and accurately report it to the IRS, corporations should collect either a Form W-9 or Form W-8 from the payee.

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Instructions to fill a Form W-9

Complete points 1-7 on the form:

  1. Enter your name. Ensure your full legal name is as shown on your tax return.
  2. Enter your business name. Write or type your business name or disregarded entity name.
  3. Choose your federal tax classification. Please check the appropriate box to indicate the type of business entity you are for federal tax classification purposes. If you are a: 
    ✅ If you are a Corporation - Check the box for Corporation.

    ✅ If you are an Individual, Sole proprietorship, or Single-member limited liability company (LLC) owned by an individual and disregarded for U.S. federal tax purposes - Check box for Individual/sole proprietor or single-member LLC.

    ✅ If you are an LLC treated as a partnership for U.S. federal tax purposes; an LLC that has filed Form 8832 or 2553 to be taxed as a corporation or an LLC that is disregarded as an entity separate from its owner but the owner is another LLC that is not disregarded for U.S. federal tax purposes - Check the box for Limited liability company and enter the appropriate tax classification. 

    (P= Partnership; C= C corporation; or S= S corporation).


    ✅ Partnership - Check the box for Partnership.

    ✅ Trust/estate - Check the box for Trust/estate.
  1. Note: Choose your exemptions. If you believe you are exempt from backup withholding or reporting requirements under the Foreign Account Tax Compliance Act (FATCA), please provide the appropriate payee or reporting code. Certain corporations may be exempt from backup withholding for payments like interest and dividends, but for more information, please refer to the official instructions provided at the end of the form.
  2. Enter your street address. Write or type the complete street address that you use on your tax return, including the number, street name, and apartment or suite number. This could be your home or business address.
  3. Enter the rest of your address. Write or type your city, state, and zip code. Including your address on the W-9 allows the IRS to match your 1099 forms with your 1040 form and keep track of your tax information.
  4. Provide the requester's information. Next, input the complete name and address of the individual or organization that has requested you to complete this form. Although this step is not mandatory, it can be beneficial to record this information for future purposes.

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Exemptions

  • Individuals (including sole proprietors) are generally not exempt from backup withholding.
  • Corporations are exempt from backup withholding for certain payments, such as interest and dividends.
  • Corporations are not exempt from backup withholding for payments made in settlement of payment card or third-party network transactions.
  • Corporations are not exempt from backup withholding for attorneys' fees or gross proceeds paid to attorneys.
  • Corporations that provide medical or health care services are not exempt from backup withholding for payments reportable on Form 1099-MISC.

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W-8 BEN or W-8 BEN-E

What is Form W-8 BEN or W-8 BEN-E?

The W-8 BEN serves the same purpose as a W-9, but it is precisely for non-US individual contractors. 

Form W-8 BEN, also known as "Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting," should be submitted by foreign individuals who receive specific income in the United States. 

If your non-US contractor is a business, they must use Form W-8 BEN-E, also known as "Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting," instead. Your company must not fill out the 1099 form if payments were made to non-US contractors. 

However, you should keep the W8-BEN or W-8 BEN-E on record for up to 7 years to support why these contractor taxes were not withheld.

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Instructions to fill a Form W-8 BEN (for foreign individuals)

The purpose of the form is to establish:

  • The individual is the beneficial owner of the income connected to Form W-8BEN.
  • The individual is foreign and not a U.S. citizen/ or other U.S. party.
  • The individual's qualification for a lower tax rate deduction or complete exemption is based on an income tax treaty between their native country and the United States.

Here is how you can fill out a W-8 BEN form:

Part I

  1. Legal Name: Enter your full legal name as it appears on your tax return.
  2. Current Citizenship: Indicate your current citizenship.
  3. Permanent Address: Provide your permanent address.
  4. Mailing Address: If you prefer to receive documents at a different address than your permanent address, you can provide a mailing address.
  5. U.S. Taxpayer Identification Number: Leave this blank if you are a non-U.S. person or foreigner without a Social Security Number (SSN).
  6. Foreign Tax Identifying Number: If applicable, enter your Foreign Tax Identifying Number issued by your country of residence. For example, Indian nationals should enter their PAN (Permanent Account Number). If you do not have a Foreign Tax Identifying Number, you should explain instead of leaving it blank (e.g., "N.A.").
  7. Reference Number: This is optional for individuals. If you are a sole proprietorship or partnership, refer to the instructions provided here.
  8. Date Of Birth: Provide your date of birth.

Part II

  1. Treaty Claim: Enter the country of residence here. Certain countries have income tax treaties with the U.S., which may allow you to claim reduced tax withholding rates. You can find the list of countries here.
  2. Special Rates And Conditions: Use line 10 only if you are claiming treaty benefits that require additional conditions not covered in line 9 and Part III. For example, if the treaty contains different withholding rates for different types of royalties or if you are an international student or researcher claiming treaty benefits. Refer to the instructions for more information.

Part III

  1. Certification & Verification: Sign and date Form W-8BEN in the format MM-DD-YYYY. The form should be signed and dated by the money owner, the account holder at a Foreign Financial Institution (FFI), or someone with legal authority. 

    If an agent is completing the form on behalf of the person, they should include a duly authorised power of attorney or a copy that allows them to complete, sign, and present the form. Form 2848 can be used for this purpose. The agent should also check the box indicating their authority to sign for the owner.

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Instructions to fill a Form W-8 BEN-E (for foreign businesses)

Part I – Identification of Beneficial Owner

This section is super important on the W-8BEN-E form. Make sure to fill it out right and complete it before you hand it in. Take your time here to make sure you have filled in all the information in the right place.

  1. Name of the Organization: Enter the foreign business' name.
  2. Country of Incorporation: Enter the country of the business' tax residency.
  3. Name of a Disregarded Entity: This section is completed only when someone other than the foreign entity receives payment. If payment is not directly made to the foreign business and goes through foreign or U.S. sources, such as an accounting institution, then this section should not be skipped.

    If there is a third party involved, Part II should also be completed. This section asks for more information about the Disregarded Entity or Branch Receiving Payment.
  1. Chapter 3 Status: The majority of foreign businesses that are doing business fall under "Corporation" or "Partnership" status. Other options include:
    • Foreign government
    • Estate
    • Simple trust (grantor and complex, too)
    • Central Bank of Issue
    • Tax-exempt organization
    • Private foundation
    • International organization
  1. Chapter 4 Status (FATCA Status): If the foreign business is an Active Non-Financial Foreign Entity, you can opt for NEFE on the form. Usually, if none of the other categories fit your company type, you should select Active NFFE as the option.

    The parts of the W8BEN-E form you complete later depend on your FATCA (Foreign Account Tax Compliance Act) status. If your company isn't a Foreign Financial Institution (FFI) such as a bank, insurance, or investment fund, you can skip all the sections related to FFI.
  1. Permanent Residence Address: This is the foreign business' registered address.
  2. Mailing Address: You can skip this section if both Mailing and Permanent addresses are identical.
  3. Tax Identification Information (foreign TIN): Since most non-US businesses won't have a U.S. Tax identification number, you can enter your company's local tax identification number (as per the business' tax filings).

Part II – Disregarded Entity or Branch Receiving Payment

If there is a third party, Part II will need to be filled out as well. This section asks you to elaborate on the Disregarded Entity or Branch Receiving Payment. This includes:

  1. Chapter 4 status: Check the box that applies to your business. If no box applies to the disregarded entity, you do not need to complete this part.
  2. Address (no P.O. box): Enter the address of the branch or disregarded entity.
  3. GIIN (if any): If you are a reporting Model 1 FFI, reporting Model 2 FFI, or participating FFI, you must enter the GIIN on line 13 of your branch that receives the payment. If you are a disregarded entity that completed Part I, line 3 of this form and are accepting payments associated with this form, enter your GIIN. Refrain from entering your GIIN on line 9.

Part III – Claim of Tax Treaty Benefits

This is for Chapter 3 purposes only. In this section, you should check the appropriate boxes and fill in the country of origin.

  1. a: If you're asking for a lower tax rate or no tax withholding according to an income tax treaty, you need to write down the country where you live for tax treaty reasons and check the box to confirm your residency in that country.

    b: Check the box that applies to your entity.

**Part XXV – Active NFFE (**Non-Financial Foreign Entity)

In this section of the form, you must select checkbox 39 to confirm that:

The entity described in Part I is a foreign entity that is neither a bank nor a financial institution.

Less than half (50%) of the total income for the previous calendar year comes from passive sources.

Less than half (50%) of the assets held are for generating or produced from passive income (calculated as a weighted average percentage of quarterly passive assets).

Part XXX – Certification

You need to accurately enter your business Name and the date the form was signed.

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How to file Form 1099 on Inkle?

  1. Request Inkle Support: Request Inkle Support to launch "W Series and Form 1099" on your Filings page. (Inkle pricing is $100 up to 3 free filings, $20 per additional filing.)
  2. Inkle's Bookkeepers Do the Math: Inkle's bookkeepers will analyze your statements and create a list of vendors you need W-Forms from.
  1. Add Vendor Emails: You enter the email address for the vendors and can send an email request to the W-Forms.
  1. Inkle Contacts Vendors: Inkle sends your vendors an automated email cc'ing you with a link to fill out their tax info.
  2. Watch the Magic Happen: Once your vendors answer the questions, Inkle automatically generates W-Forms and uploads them to your Inkle 1099 Filing.
  1. Effortless Form 1099 Filing: Based on the collected W-9 forms, Inkle will file your Form 1099s.

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