As The Freelance Economy Grows, So Does The Pervasiveness Of The 1099 Form
The freelance economy, also referred to as the “gig” economy (and it’s latest moniker, the “side hustle”) continues on its current growth projection like a hockey stick.
Today, a staggering 55 million people — more than 35% of the U.S. workforce — are now freelancers or contractors, and that number is projected to rise to 43% by 2020, with as many as 86 million by 2027. About 44 million people currently report having some kind of side hustle, and of those who do, 36% say they earn more than $500 a month from it.
The gig economy uses a business model that was simply unthinkable 20 years ago, as the mindset and technology that enable peer-to-peer commerce didn’t exist. The gig economy will keep growing as mobile usage increases, in the United States and around the world.
Today, one in five Americans — or 45 million people — are involved in the gig economy, which is expected to further expand in the coming years. And while there’s a universal demand among businesses for gig workers, it’s interesting that older, seasoned white-collar workers — not millennials — are driving the majority of this workforce change.
Almost all U.S. jobs created between 2005 to 2015 have been temporary. “Alternative work” accounted for 94% of new jobs during that period — with the biggest increases coming from freelancers, independent contractors, and contract company workers (who work at a business but are paid by an outside firm).
In fact, the demand for independent contractors or freelancers is so great, a recent Randstad Sourceright survey of 700 HR leaders worldwide found that 61% of businesses plan to convert a third of their full-time permanent positions into jobs for independent contractors, freelancers and temporary workers. Even if these survey results are 20-30% overly “aggressive”, the research suggests that all organizations will be affected, regardless of industry and size, so it’s time to increase your knowledge and understanding of this new future of work.
Independent Contractors, Freelancers, and the 1099 Form
With that said, let’s move the discussion to accounting, and cover the importance of Form 1099, which are the Federal tax forms sent to independent contractors to document the services they offered throughout the tax year as non-employee income.
People and companies that paid miscellaneous income of more than $600 to individuals or independent contractors must give the payee the Form 1099-MISC and report the amounts in Box 7: Nonemployee Compensation. This form must be given to the recipient and filed with the IRS by the deadline of January 31.
Here are the steps to take now to ensure you will meet the new filing deadlines and avoid penalties:
- Make sure you have a Form W-9 for each payee and confirm the accuracy of all information.
- Order 1099-MISC forms and the transmittal form (Form 1096). The IRS changes these forms every year.
- Reconcile your actual amounts paid to the detailed 1099 amounts now so that you can correct any discrepancies, leaving only December to reconcile at year-end.
- Check for errors before you submit to the IRS.
Keep in mind, filing 1099’s by Jan. 31st is not optional. The new penalties range from $50 to $500 per missed 1099 tax form, and the penalty increases from $100 to $250 per failure to file correct information returns.
If your current accounting software doesn’t make the 1099 process easier, call us at (210) 614-9410. It’s time to talk with the professionals at Express Information Systems – we’re here to make your life EASIER.