Global Payroll and Benefits — 7 min
If you are a US company and have paid contractors for work this year, you may be required to file Form 1096. While you have probably heard of the more popular 1099 forms, you may be less familiar with the 1096.
Obviously, filing the right tax forms is an essential part of managing payroll. But what is a 1096? And when do you need one?
You certainly don’t want to face penalties for failing to file your taxes properly. Let’s take a look at Form 1096 to help keep your business on the right track.
Form 1096 is the Annual Summary and Transmittal of U.S. Information Returns issued by the United States Internal Revenue Service (IRS).
According to the IRS, “An information return is a tax document used to report certain types of payments made by financial institutions and others who make payments as part of their trade or business.” The 1096 is essentially a physical cover sheet for certain information returns pertaining to contractors. Form 1096 is used when submitting certain forms to the IRS on paper by mail. Those forms include:
Although you can file many forms online at IRS.gov, Form 1096 is different. Since the purpose of this form is to act as a cover sheet for paper forms, it must be submitted as a printed form. You may download Form 1096, but you must print it and submit it via mail. Additionally, the IRS uses scanning technology to intake physical forms, so you must be sure to submit a scannable form.
Therefore, you must use an original form from the IRS. You can order forms online at IRS.gov/forms. You can also request forms by phone at 1-800-TAX-FORM (1-800-829-3676).
First, enter the following information:
Then, enter the total number of forms you are filing along with the 1096. Keep in mind that each 1096 may only be used for one type of form. For example, If you have sent out six 1099s, you may use one 1096 when submitting them. But if you have sent out six 1099s and two 1097s, you should use one 1096 for the 1099s and another 1096 for the 1097s.
Next, you need to calculate and enter the total federal income withheld and the total amount reported for all forms included on this 1096.
Then, check the box next to the one form you are filing. You may only check one box.
Finally, sign and date the form.
It is the employer or payer’s responsibility to submit the 1096 form when submitting relevant forms to the IRS by mail-in paper form. Employees and contractors do not need Form 1096 when submitting their taxes.
The 1096 form is used as a summary page for many forms, including the 1099.
The 1099 form is used to document payments to contractors in amounts over $600. So, for example, if you are a business and you hire a foreign contractor to create your website for $2500, you should issue a 1099 form to that contractor. You should then send a copy of that 1099 to the IRS along with a 1096 form. This form is used for all global contractors in or outside of the United States.
If you submit your forms electronically, you don’t need Form 1096. This form is only used in conjunction with paper forms submitted by mail. However, permission, software, and alternate forms may be required to file online.
Each situation is unique, so make sure you know what is required for your business. Remote’s Guide to Managing Global Payroll can help.
Form 1096 cannot be filed electronically. It is only used with paper forms. When filing the relevant forms electronically, you may be required to file an appropriate electronic form.
In most cases, the 1096 form must be submitted by the due date for the form it accompanies. With a few exceptions, that deadline is February 28 when filing on paper by mail.
If submitting form 1096 with Form 1099-NEC, the deadline is January 31. If submitting with Form 5498, the deadline is May 31.
Businesses that do not submit a 1096 form can be subject to the following penalties.
The 1096 form is used only for contractors according to the IRS definition of contractors. Of course, other countries may use different definitions for their workers. This makes classification and compliance difficult, especially if your workers live in more than one country. Improper classification can open you up to fines, penalties, and litigation. Our guide to the dangers of contractor misclassification provides more information.
Paying remote employees abroad can be complicated, as rules vary from country to country. You may want to look into outsourcing global payroll.
Keep in mind that without a local legal entity, it’s impossible to employ people in other countries. Unfortunately, establishing a local legal entity is both time-consuming and expensive. An employer of record may be able to help, but be sure your chosen partner owns its legal entities and does not outsource the work to others.
An employer of record provides the legal infrastructure you need to hire employees in other countries. But a good EOR partner can do far more than simply employ and pay your workers. They can also help you manage employee benefits, time off, and issues of local compliance.
These are critical factors, as the cost of compliance violations in other countries can be high. Failing to abide by local labor laws can lead to penalties and expose your company to potential litigation. If you make the news, your compliance issues could even compromise your credibility in the eyes of customers and potential partners. That’s why it makes sense to work with a reputable EOR partner who can help you navigate the waters of global compliance.
Taxes are complicated, even more so when you employ international contractors. Understanding Form 1096 is important if you are a US-based company employing contractors and filing on paper by mail. The information in this guide will help you file the right forms on time to avoid penalties and stay compliant.
Have questions about managing your international employees and contractors? Reach out and let us know! We are always happy to help you grow your global team.
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