Form 1096 is the IRS form that reports non-employee compensation. If you are self-employed or have employees who are not on your payroll, you may have to file Form 1096 with your tax return.
So, what Is form 1096? The 1096 form reports information to the IRS about non-employee compensation. Non-employee compensation includes payments made by a business to independent contractors, non-resident alien employees, and foreign corporations. The form is used when you have paid out more than $600 on behalf of a vendor during a calendar year.
Filing Form 1096
Form 1096 must be submitted for most information returns by February 28, following the tax year. However, filing it as soon as possible is a good idea to avoid fines and penalties.
If you don’t file Form 1096 by the deadline, you can be subject to penalties and interest charges. You’ll also want to ensure that any payments made in, for instance, 2022 are reported on your 2022 return.
Who Needs To File Form 1096?
You should file Form 1096 if you are required to withhold any income tax from payments made during the year, and don’t use EFTPS to make federal tax deposits. It includes corporations, partnerships, estates, trusts, and exempt organizations. A Form W-2 and a Wage and Tax Statement must be filed for each employee if you are an employer who pays wages or other forms of compensation.
Primary Purposes of Form 1096
Tax forms can be confusing and overwhelming. Form 1096 is a document you may have to file for your business.
Here are the five primary purposes of Form 1096:
- It’s used by employers who pay other people’s wages or salaries, such as employees’ wages or salaries, directors’ fees, and pension contributions paid to third parties.
- It helps the IRS determine whether self-employed people have income and if they need to pay taxes.
- It displays any Social Security taxes deducted from wages paid throughout the year, including those paid at more than $200,000. (For 2019).
- Routine accounting: By filing this form with your federal taxes each year, you can easily keep track of all payments made throughout the year so that they’re accounted for when tax time rolls around.
- Tax compliance: By filing a copy of this form with your federal taxes each year, you’ll be able to prove that you’ve paid all required taxes on these vendors’ services.
What Are the Consequences if I Don’t File Form 1096?
If you do not file Form 1096 by January 31, the IRS may assess penalties of up to $270 per form for failure to file and to furnish correct information. The penalty can be assessed even if you have no income from which your business could be taxed. It also applies if you fail to file or give correct information for two or more forms in any calendar year. If you continue to fail after a demand has been made, you may be charged an additional penalty equal to 5% of your failures.