November 28th, 2023
The Internal Revenue Service categorizes 1099 tax forms as information returns. These forms provide details about various financial transactions, Failure to file tax returns with government agencies and send them to individual taxpayers can result in fines. Therefore, it is important to understand who needs 1099s and which form to use.
Previously, business owners used Form 1099-MISC to report compensation to freelancers, vendors, and contractors. Starting in 2020, the IRS instructed businesses to use Form 1099-NEC (non-employee compensation). In most cases, you would need to issue a Form 1099-NEC if you pay any non-employee (individual, partnership, limited liability company, or estate) $600 or more to perform services (payment for which can include the cost of parts and materials) for your business within one calendar year.
Examples of who should receive 1099s:
- Anyone who provided professional services, like accountants, engineers, or architects.
- Non-employee salespersons earning commissions.
- Independent contractors who get paid for services, goods, or travel.
- Professionals who received referral or fee-splitting fees.
- Non-employee entertainers for services related to your business.
- Certain people who got golden parachute payments after a merger or acquisition.
The most common businesses which do not need 1099s:
- Vendors operating as S or C-Corporations LLCs or partnerships taxed as an S or C-Corp
- 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, unless they meet another exception.
Form W9
The W-9 is used to collect the information needed to issue Form 1099. A business owner should request a W-9 from any vendor you expect to pay more than $600 before paying them. This will provide the vendor’s mailing information and Tax ID number. This will also require them to indicate if they are a corporation or not. You can download a W-9 here.
The best compliance method is to use your accountant handling your tax preparation to manage this. There are also software products which will enable you to manage the process yourself.
Deadlines
Taxpayers are required to issue and mail out all Forms 1099-NEC, 1099-MISC, 1099-DIV, 1099-INT, and 1099-R to those who they paid more than $600 in a calendar year, no later than January 31st of the following year.
Business owners must compile all their 1099-NEC forms, send the accompanying 1096 and mail them to the IRS or file them e-file them with the IRS by January 31st. For Forms 1099-MISC, 1099-DIV, 1099-INT, and 1099-R, business owners must compile all the 1099s and mail to the IRS with a Form 1096 by February 28th. The deadline for e-filing these documents is March 31st.
There are several states that have filing requirements for form 1099 and 1099-NEC. You should consult with your tax professional to confirm specific state rules and deadlines.