• Money paid to independent contractors must be explained on 1099-MISC forms.tax time image by Gale Distler from Fotolia.com
  
  Businesses are required to file a particular tax document, the 1099-MISC, for independent contractors who perform services for them, but are not directly employed by them. Because independent contractors are essentially self-employed, the income they earn is treated differently than regular wages and salaries paid to employees. Businesses must follow certain regulations when preparing and sending these 1099 forms to contractors.
  
  

1099-MISC Copies

• Businesses, referred to as payers for tax purposes, are required to submit several copies of the 1099-MISC; copy A goes to the IRS, copy 1 goes to the payer's state tax department, copy B goes to the recipient (the contractor), copy 2 goes go to the recipient's state tax department and copy C is for the payer's records. Copy A must be filed together with a form 1096.
  
  

General Preparation Rules

• Independent contractors must receive an original, handwritten or typed paper copy of the 1099-MISC, electronic copies can only be sent to the IRS, and photocopies are not allowed. Forms cannot be stapled, torn or taped. Do not use prior tax year forms for information regarding the current tax year. Do not change the title of any box or include information not requested in any certain box. Do not use the following characters on any copy: $, &, *, #, %, '. Always use decimal points to indicate dollars and cents (1000.00 not 1000).
  
  

Recipient's Information

• Write the recipient's full name and address as it would appear on other tax forms. If the recipient is a sole proprietor, write the person's name, then the "Doing Business As" name underneath. For corporations, write the corporation's name and address. The recipient's tax ID must be placed on the appropriate line. Rules adopted in the 2009-2010 tax year allow for the payer to put a truncated tax ID on the form, if desired. If you are correcting a mistake made previously, place an 'X' in the "Corrected" box before sending the form. An account number must also be included if one was placed on other copies of the form. Lastly, for contractors, box 7 "Non-employee Compensation" should be filled in.
  
  

When and Where to File

• Recipients of the 1099 form must receive the forms at least by January 31 of every year. This is so the recipients have enough time to record payments for their own tax purposes. The IRS must receive its copy A of the form by February 28. Copy A of the form must be sent to the correct IRS address, either Austin, TX 73301, or Kansas City, MO 64999, depending on the location of the business.