1099s
It’s time to start thinking about 1099’s that may be needed for your independent contractors. If your independent contractors have not completed a Form W-9, they need to do so. Here are some basics you should know.
Whom are you required to send a Form 1099-MISC or 1099-NEC? Businesses are required to send Form 1099-MISC or 1099-NEC to vendors or sub-contractors that you paid more than $600 combined via check/cash/EFT/ACH/Zelle during the normal course of business.
What are some examples of services? Landscaper, janitorial, repairs, professional fees, rent, etc.
Who are considered vendors or sub-contractors? Essentially, this is a person or company you have paid for services that isn't your W2 employee. The IRS has tests which can be found here https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation
Do non-profit organizations have to issue 1099s? Yes, they do.
What are the exceptions? The list is fairly lengthy, but the most common is that you don't need to send a 1099-MISC or 1099-NEC to:
Vendors operating as S or C-Corporations (Line 3 of W-9 form provides this classification).
This can include LLCs taxed as a corporation.
Sellers of merchandise, freight, storage, telephones, or similar items.
Payments of rent to or through real estate agents (typically property managers). However, keep in mind that you do need to issue a 1099-MISC to a property owner to whom you are paying rent unless they meet another exception.
Lawyers get the short end of the stick. Ironically, the government doesn't trust that lawyers will report all their income. Therefore, even if your lawyer is 'incorporated', you are still required to send them a Form 1099-NEC if you paid them more than $600 by cash/check/EFT/ACH/Zelle.
Don't worry about credit card and 3rd party network payments. The IRS allows taxpayers to exclude from Form 1099-MISC or 1099-NEC any payments you made by credit card, debit card, gift card or third-party payment network such as PayPal, Venmo and Square. (These payments will be reported by the card issuers and third-party payment networks on Form 1099-K if they meet the threshold.)
The W-9 is your best friend. 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. Using this as a normal business practice will give you the vendor's mailing information, Tax ID number, and will require them to indicate their federal tax classification status (saving you the headache of sending them a 1099-MISC next year). You can download a W-9 here and we have attached one for your convenience.
Due dates
The recipient copies of both 199-NEC and 1099-MISC forms are due by January 31, 2024.
The IRS copies for Form 1099-NEC are due by January 31, 2024.
The IRS copies for Form 1099-MISC is due by March 31, 2024 when filing electronically.
Keep in mind that e-filing the IRS copy is required for 250+ vendors. Additional rules may apply.
The IRS may impose penalties for late filing.
Please contact us if you receive any notices from the IRS related to 1099s as penalties may apply.
If your payroll company is preparing 1099s for you, make sure to give them the Form W-9s for all folks that may need one i.e. rent, attorneys, etc.