1099 Basics & FAQs
Not sure if you need to file a Form 1099-MISC? In this article, we answer frequently asked questions and break down the basics of a Form 1099-MISC.
In this article:
- What is a 1099-MISC Form?
- When is a 1099-MISC Form due?
- Why do I need to complete a 1099-MISC Form?
- Are there certain types of entities that do NOT require a 1099?
- What is the difference between a 1099-MISC, 1099-DIV, and 1099-INT?
- Do credit card payments to 1099 vendors need to be tracked for income?
- Should reimbursements to sub-contractors be included in 1099 tracking?
- What is the difference between guaranteed payment and a partnership distribution?
- What specifically do "legal fees" entail?
- What if I pay "rents" to a property manager?
- What is a W-9 Form?
- When do I need to request W-9 Form?
What is a 1099-MISC Form?
The 1099-MISC Form is an information return the IRS requires you provide to any individual or unincorporated business whom you have issued $600 or more in rents or compensation (other than salaries, wages, tips or other employee compensation, which are reported on Form W-2). IRS also requires 1099s for payments of $10 or more in gross royalties. There are additional requirements and scenarios when a 1099 of other variants may be required. For more details, see IRS General Instructions for Certain Information Returns.
When is a 1099-MISC form due?
Recipient copies must be postmarked by January 31. In addition, copies must be filed with the IRS by January 31 for all forms indicating box 7 non-employee compensation.
All others are due by February 28 if filed by paper, or March 31 if filed electronically. Penalties for late filing range from $30 - $100/form; penalties for intentionally disregarding the requirement are $250/form.
Why do I need to complete a 1099-MISC form?
The information is used by the IRS to verify the vendor you paid has reported at least the amount you stated in gross business income. The IRS requires corporations on Form 1120 indicate whether or not they made any payments that would require a Form 1099 be filed and whether or not the form was filed. Thus your tax preparer will be required to review your 1099s to ensure all were accounted for properly prior to submitting your corporate tax return. Same is true of partnerships filing Form 1065. As with all IRS items, there is a lot of fine print. This article cannot capture all scenarios.
Are there certain types of entities that do NOT require a 1099?
Although incorporated vendors do not require a 1099-MISC to be issued at year-end (i.e., C-Corps and S-Corps), it is still within your right to request a W-9 from these types of vendors; and you could also send a 1099-MISC if you are unsure of their entity type and eligibility.
What is the difference between a 1099-MISC, 1099-DIV, and 1099-INT?
Form 1099-MISC aggregates payments made for services performed as outlined above. A Form 1099-INT is an interest statement for interests paid; Payers must issue to any party to whom they paid at least $10 of interest to during the year. A Form 1099-DIV provides statement on dividends paid (a common reason might be related to capital gains distributions related to stocks, mutual funds, or investments.
Do credit card payments to 1099 vendors need to be tracked for income?
You are not required to send a 1099-MISC if you paid any contractor via credit card (PayPal, etc.), even if you paid the recipient more than $600 last year. In the case of electronic payments (credit card payments), the payment processor will handle any required reporting. FYI - Those payment processors are required under certain circumstances to send out a different version of the 1099, called a 1009-K.
Should reimbursements to sub-contractors be included in 1099 tracking?
No, UNLESS the Payer does not keep track of these expenses using an accountable plan (substantiation such as receipts are provided). If you DO track these expenses using an accountable plan there is no need to include these amounts in box 7. Depending on the accounting of the business, some will still include reimbursed expenses as Nonemployee Compensation (box 7) and then the recipient could then deduct that amount when filing their individual tax return. HOWEVER, if reimbursements are a part of services (supplies, parts, materials incidental to providing service), than a 1099 may be required. FOR EXAMPLE: you purchase cleaning supplies from XYZ Cleaning to have on-site (does not require a 1099) BUT you pay ABC Cleaning to come and clean, and they charge you for the cleaning supplies, then the total amount should be included in the 1099.
What is the difference between guaranteed payment and a partnership distribution?
Distributions are made as earnings, or in liquidation of a member's interest. Guaranteed payments are made irrespective of earnings considerations and subject to income and self-employment taxes reported on a tax return. For example, premiums for health insurance paid on behalf of a member for services rendered are treated as guaranteed payments. Cash payments are treated as a Distribution. Seek help from your CPA or tax advisor on the ins/outs of your situations.
What specifically do "legal fees" entail?
For any amounts greater than $600, a 1099 is required, EVEN IF THEY ARE INCORPORATED. If the payment is for legal services provided by an Attorney, and is an amount greater than $600, these expense amounts will be reported in Box 7. However, for Gross Proceeds (from a settlement) paid to an Attorney, these expenses get reported in Box 14.
What if I pay "rents" to a property manager?
If rents were paid to a real estate agent or property manager, that entity will send a 1099 to the property owner. If you pay rents directly to the property owner, you will need to issue a 1099 for any amounts over $600.
What is a W-9 Form?
A signed W-9 confirms, under perjury laws, that the signer is providing accurate information regarding their entity type, federal tax classification, and Taxpayer ID Number (TIN). A vendor can say that they are incorporated, and that they do not need to provide a W-9 or receive a 1099-MISC at year-end, but that is not always accurate.
When do I need to request W-9 Form?
If you are hiring an independent contractor to provide or complete a service, we recommend that you request a copy of a signed Form W-9 prior to that contractor beginning the project. (It is also advisable that you obtain a copy of the contractor’s Workers' Compensation/General Liability insurance policy.)
Anatomy of a Form 1099-MISC
For a further breakdown of items on Form 1099-Misc, visit the IRS 1099 Instructions page.