By Carol Swenson, CPA
Form 1099-MISC is the IRS form for reporting income for self-employed people. You must file one for each person you’ve paid during the year, with exceptions. If you’ve scratched your head over a 1099, you’re not alone—many business owners find the rules surrounding to be downright confusing. (It doesn’t help that the rules have gone through multiple iterations over the years.)
Although it can be tempting to make a half-effort to follow the 1099 rules or even throw up your hands in defeat, resist the urge! Failing to comply could lead to costly penalties. Instead, read on for a few important things to know about these infamous forms, and don’t hesitate to contact us if you have questions.
Here’s what you should know before preparing Form 1099-MISC:
Don’t file 1099s for employees, corporations, and payments made by credit card.
Generally, you must file a 1099 for anyone to whom you’ve paid at least $600 in things like rent, services performed by a contractor (i.e., someone who isn’t an employee), or prizes and other awards. You can find a full list of 1099 recipients on the IRS website. However, as I mentioned, you won’t file a 1099 for everyone.
First up on the “exempt from 1099s” list: your employees. An easy way to think about this: If you send someone a W-2, you won’t file a 1099 for this person. You also don’t need to file a 1099 for corporations, including S corporations. So, if you see “Inc” or “Corporation” in a contractor’s business name, be sure to check their entity type.
Finally, you don’t need to file 1099s for payments made by credit card. The recipients of these payments will receive a 1099-K statement from the processor of the credit card. Filing a 1099-MISC for these would cause you to erroneously count the income twice.
Send a copy to the recipient by January 31.
If you are required to file a 1099 for someone, you must also send this person a copy of the statement—and do so by January 31. This means your 1099s must be prepared in time to make this deadline, which means now is the time to act. You’ll have to determine which payees need a 1099, fetch the information the form requires, and ensure the form is filled out correctly. It can be a lot of work.
Pay attention to 1099 deadlines. In addition to the deadline I mentioned above, there’s this one: Your 1099s must be filed with the IRS by February 28 or, if you’re filing electronically, by March 31. Trust me, these deadlines come up quickly.
Leave yourself enough time to complete your 1099s.
This is the most important thing to know about 1099s: preparing them can take longer than you think. You must gather all of the W-9 data for filing—name, address, tax id number for each recipient, and get it back—all before the end of January. In other words, don’t wait until the last minute.
If you didn’t request W-9s from your independent contractors at the start of your relationship, consider doing so now. Without a contractor’s tax ID, you could be on the hook for 35% backup withholding that you should have held back.
If you’re confused about or already feeling behind on your 1099s, the PWB team is here to help. We can work on your behalf to prepare, distribute, and file 1009s for all of your recipients. So, if you’re feeling overwhelmed this January, don’t fret. Contact us today.
Contact your PWB advisor.
Carol Swenson, CPA 763-557-2582