1099 Info For Business Owners
- Who is required to send a Form 1099-NEC? You are required to send Form 1099-NEC to vendors or sub-contractors during the normal course of business you paid more than $600. This includes any individual, partnership, Limited Liability Company (LLC), Limited Partnership (LP), or Estate.
- Who are considered Vendors or Sub-Contractors? Essentially, this is a person or company you have paid for services that aren’t an employee.
Are there any exceptions?
- You DO NOT need to send a 1099-NEC to:
- Vendors operating as S or C-Corporations (you’ll find their status out when you get a W-9 from them..see below)
- LLCs or partnerships taxed as an S or C-Corp (again see the W-9 procedure below)
- Sellers of merchandise, freight, storage or similar items
- Payments of rent to or through real estate agents (typically property managers). However, you need to issue a 1099 to a landlord you are paying rent (again as a business owner FOR your business, NOT as an individual for your own apartment/home), unless they meet another exception.
- Don’t worry about credit card payments and PayPal. The IRS allows taxpayers to exclude from Form 1099-NEC any payments you made by credit card, debit card, gift card, or third-party payment. As long as you confirm that you are indicating that this is a business payment on the 3rd party platform, networks such as PayPal or Venmo are reporting these payments on a Form 1099-K to the recipients…you don’t need to do it for them.
- Lawyers – Ironically, the government doesn’t trust that lawyers will report all of their income. This means that even if your lawyer is ‘incorporated’, you are still required to send them a Form 1099-NEC. This is if you paid them more than $600 in your business and you are wanting to take a business deduction for paying them.
- The procedure. Go to https://www.irs.gov/filing/e-file-forms-1099-with-iris. You can e-file any Form 1099 for tax year 2022 and later with the Information Returns Intake System (IRIS). The system also lets you file corrections and request automatic extensions for Forms 1099.
- Deadline to Payees. The deadline to send out 1099s to payees is January 31st (via mail or email).
- Deadline to send the IRS Form 1099-NEC…This is a new rule that started in 2023- Take note!! If you have 10 or more 1099-NEC forms that need to be issued, you MUST file them ELECTRONICALLY with the IRS by January 31st (NOT the end of February- under the old rule, or if you had more than 250 1099-NECs). Also, depending on state law, you may also have to file the 1099-NEC with the state. (This is where delegating the task to your accountant or using approved software really comes in helpful).
- Deadlines to send the IRS all other Form 1099s. For Forms 1099-MISC, 1099-DIV, 1099-INT, and 1099-R, business owners have to compile all of the 1099s and follow the proper method of reporting and the appropriate deadline.
- Don’t forget the States. There are a number of states that have filing requirements for form 1099s and the 1099-NEC. Currently, these states require you to file a 1099-NEC with them – CA, DE, HI, KS, MA, MT, NJ, OH, OK, OR, PA, RI, VT, and WI. If you’re operating in a State that requires this make sure to confirm the rules and deadlines.
- MUST I file Electronically? Yes! Again, IF you have more 10 Form 1099s to file, you MUST file electronically. However, you if you have less than 10 forms to report, you can do it via mail. If a taxpayer fails to comply with the proper method, there are serious penalties of up to $100 per form for failure to file electronically. If you establish reasonable cause, you will not be subject to the penalty.
- What about foreign workers? If you hire a non-U.S. citizen who performs any work inside the United States, you need to issue them a Form 1099-NEC. If they are non-US citizen AND perform all of their work outside the U.S., you are not required to issue a 1099-NEC. However, it is your responsibility to verify that the worker is indeed a non-U.S. citizen. IF the worker is a U.S. citizen, no matter where they do the work, you are required to issue the appropriate form 1099 unless they are exempt. For that purpose, in the future you want to have any foreign worker fill out, sign, and return to you Form W-8BEN.
The W-9 is your “Best Friend”
In this process, it may frustrate you if you don’t have all the information you NEED to issue Form 1099-NEC to the payee. One of the smartest procedures a business owner can implement is to request a W-9 from any vendor you expect to pay more than $600 before you pay them.
Getting the W-9 upfront as a normal business practice will give you the vendor’s information you need, including mailing information, any exemption they may fall within, and their tax ID number. For example, the form will also require them to indicate if they are a corporation or not and will save you the headache of sending them a 1099-NEC. You can download a W-9 here.
Suggested Procedure for 2024:
Moving forward this year, make sure to get a Form W-9 from all your vendors before they get paid.
Getting a W-9 from them will ALSO ensure you ultimately get your tax-write off for 2024 and it will certainly save you a lot of headaches next January. For more information on this see the Instructions for the W-9.
What are the Penalties if I miss a Deadline?
Penalties for not filing a correct 1099 can add up quickly. They vary from $50 to $110 per Form depending on how long past the deadline. Moreover, if the IRS can prove that a business intentionally disregarded the requirement to provide a correct payee statement, they are subject to a minimum penalty of $550 per statement, with no maximum!