When running a promotion in the United States, any prize over $600 in value is subject to income tax to the winner (in Canada however, contest prizes have no tax implications – possibly the only tax benefit Canadians have over Americans!). That means that when running a promotion in the US, a knowledge of tax laws and in particular, 1099-MISC forms, is needed to avoid penalties or consequences from the IRS.
1099-MISC Income Tax Forms
But first let’s break down what a 1099-MISC form is and the meaning of it. A 1099-MISC form is a tax form that the IRS uses to track miscellaneous income. As a business that specializes in Contests and Sweepstakes, WSP has a great understanding of 1099-MISC forms and the procedures needed to follow when filing them. It is required to file a 1099-MISC form only for individuals that have been paid or won a prize valued at $600 or more during the tax year (above their income). Some businesses make the mistake of filing 1099-MISC forms for employees as well. The IRS is very strict between consumers and employees. You are not required to file a 1099-MISC form for employees, however, you are required to file a W-2 form to report wages, tips and other income paid to the employee during the tax year. There can be significant penalties for filing 1099-MISC forms for employees so that is why you must keep track who is an employee during the Contest or Sweepstakes period.
Filing 1099-MISC Income Tax Forms
The steps and procedures for filing a 1099-MISC form is very simple. It all starts during the Contest or Sweepstakes period, by gathering the winner’s required information by means of a W-9 Form (Request for Taxpayer Identification Number and Certification can be download at https://www.irs.gov/pub/irs-pdf/fw9.pdf) which acquires the winner’s full name, address and social security number. At the end of each tax year, it is required that a 1099-MISC form is completed for each consumer that received a prize valued over $600. There are 3 copies – the law states that you are required to send one copy to the consumer, one copy to the IRS and one copy to the business.
Deadlines for Filing 1099-MISC Income Tax Forms to Winners
There are two ways you can file a 1099-MISC form, via mail or electronically. The law states that the business is required to file 1099-MISC forms no later than January 31st. If you miss the deadline, you may be required to pay a penalty fee for each late 1099-MISC form. If you intentionally fail to file a 1099-MISC form, you may be subject to a penalty of $520 per statement.
The good news is that even though filing a 1099-MISC form can take time, there are plenty of online filing services to help. The procedures are very simple and easy to follow which makes it easy for businesses to run Contests and Sweepstakes in the United States to create excitement, give away lots of great prizes and ensure we put a smile on your customers’ faces!
For more information, check out the IRS Government at: https://www.irs.gov/uac/about-form-1099misc