As we quickly approach the 1099 filing season, it is time to consider whether your business is ready to file.
For businesses, the most common Form 1099’s used are 1099-NEC and 1099-MISC.
Note that Form 1099-NEC is utilized to report amounts of nonemployee compensation, while Form 1099-MISC is utilized to report other forms of compensation; rent being the most common. The due date for furnishing 1099-MISC or 1099-NEC statements to recipients for the 2024 tax year is Friday, January 31, 2025.
For businesses, the most common Form 1099’s used are 1099-NEC and 1099-MISC.
Note that Form 1099-NEC is utilized to report amounts of nonemployee compensation, while Form 1099-MISC is utilized to report other forms of compensation; rent being the most common. The due date for furnishing 1099-MISC or 1099-NEC statements to recipients for the 2024 tax year is Friday, January 31, 2025.
Form 1099-MISC and 1099-NEC are essentially utilized to report payments made to non-employee individuals or unincorporated businesses during the calendar year. As the filing of Form 1099-MISC/NEC remains a hot topic with the IRS, it is more important than ever to consider whether you are required to file Form 1099-MISC/NEC in the course of your trade or business.
Do you need to file 1099-MISC or 1099-NEC?
In general, you must file Form 1099 for each person or unincorporated business to whom you have made cash, check, or ACH payments of at least $600 in rents, services, prizes and awards, or other income payments made in the course of your trade or business during a calendar year. Examples of services performed by independent contractors or others (non-employees of your business) include, but are not limited to:
Generally, you do not need to report payments to another business that is incorporated, however, gross proceeds of $600 or more paid to an attorney requires a Form 1099-NEC regardless of whether the payments are made to an incorporated entity.
It is always a good idea upon hiring a contractor to obtain a W-9 Form. This form can easily be found on the IRS website. The W-9 form will give you contact information, vendor’s tax identification number and type of tax entity. As a customer, it protects you from paying illegal vendors and includes all the required information you will need in order to prepare Form 1099-MISC/NEC.
One other notable exception to filing 1099s forms is if a payment was made with a credit card, debit card, or third party payment processor (PayPal, Venmo, Apple Pay, etc.). Credit card companies and third party payment processors are required to provide Form 1099-K, so payments made through these methods should not be reported on 1099-NEC or 1099-MISC as they would be double-counted. It is important to note that if you use the “Bill Pay” feature provided by your bank, your bank will typically issue a check or ACH payment, which should be reported on 1099-MISC/NEC.
Do you need to file 1099-MISC or 1099-NEC?
In general, you must file Form 1099 for each person or unincorporated business to whom you have made cash, check, or ACH payments of at least $600 in rents, services, prizes and awards, or other income payments made in the course of your trade or business during a calendar year. Examples of services performed by independent contractors or others (non-employees of your business) include, but are not limited to:
- Accountants
- Construction
- Landscapers
- Custodial Services
- Electricians
- Consultants
- Attorneys
- IT (Information Technology)
- Other Professional Services
Generally, you do not need to report payments to another business that is incorporated, however, gross proceeds of $600 or more paid to an attorney requires a Form 1099-NEC regardless of whether the payments are made to an incorporated entity.
It is always a good idea upon hiring a contractor to obtain a W-9 Form. This form can easily be found on the IRS website. The W-9 form will give you contact information, vendor’s tax identification number and type of tax entity. As a customer, it protects you from paying illegal vendors and includes all the required information you will need in order to prepare Form 1099-MISC/NEC.
One other notable exception to filing 1099s forms is if a payment was made with a credit card, debit card, or third party payment processor (PayPal, Venmo, Apple Pay, etc.). Credit card companies and third party payment processors are required to provide Form 1099-K, so payments made through these methods should not be reported on 1099-NEC or 1099-MISC as they would be double-counted. It is important to note that if you use the “Bill Pay” feature provided by your bank, your bank will typically issue a check or ACH payment, which should be reported on 1099-MISC/NEC.
What if I choose not to file or do not have all the proper information?
Failure to file correct information returns by the due date can be costly. If you fail to file a correct information return by the due date, and you cannot show reasonable cause, you may be subject to penalties. Penalties apply if you fail to file timely, you fail to include all information required to be shown on a return, or you include incorrect information on a return. Penalties also apply if you file on paper when you were required to file electronically, you report an incorrect TIN or fail to report a TIN, or you fail to file paper forms that are machine-readable.
The amount of the penalty for 2024 is based on when you file the correct information return and is outlined below in further detail:
If any failure to file a correct information return is due to intentional disregard of the filing or correct information requirements, the penalty is at least $660 per information return with no maximum penalty.
How can you tell if you need to file a Form 1099-MISC or 1099-NEC?
You are not required to file Form 1099 if any of the following apply:
If you’re not sure, ask questions! Never assume that because a business name includes the word “Company” or “Co.” that it is a corporation. Businesses that are Limited Liability Companies (LLCs) can be treated as sole proprietors, partnerships, or corporations. The best way to ensure you have the information you need is to get a payee to complete IRS Form W-9 before you write a check.
For more information from the IRS about filing Form 1099-MISC and 1099-NEC take a look at their instructions.
As always, our team at Mason + Rich is ready to answer any additional questions. Feel free to contact us and follow us on LinkedIn to stay up-to-date on all of our posts.
Failure to file correct information returns by the due date can be costly. If you fail to file a correct information return by the due date, and you cannot show reasonable cause, you may be subject to penalties. Penalties apply if you fail to file timely, you fail to include all information required to be shown on a return, or you include incorrect information on a return. Penalties also apply if you file on paper when you were required to file electronically, you report an incorrect TIN or fail to report a TIN, or you fail to file paper forms that are machine-readable.
The amount of the penalty for 2024 is based on when you file the correct information return and is outlined below in further detail:
- $60 per information return if you correctly file within 30 days; maximum penalty $664,500 per year ($232,500 for small businesses as defined by the IRS).
- $130 per information return if you correctly file more than 30 days after the due date but by August 1; maximum penalty $1,993,500 per year ($664,500 for small businesses as defined by the IRS).
- $330 per information return if you file after August 1 or you do not file required information returns; maximum penalty $3,987,000 per year ($1,329,000 for small businesses as defined by the IRS).
If any failure to file a correct information return is due to intentional disregard of the filing or correct information requirements, the penalty is at least $660 per information return with no maximum penalty.
How can you tell if you need to file a Form 1099-MISC or 1099-NEC?
You are not required to file Form 1099 if any of the following apply:
- You are making payments personally, unrelated to a trade, business, or rental.
- You are engaged in a trade or business and payments are made to a corporation, but were not for legal services or settlement.
- The sum of all payments made to the person or unincorporated business are less than $600 in one calendar year.
If you’re not sure, ask questions! Never assume that because a business name includes the word “Company” or “Co.” that it is a corporation. Businesses that are Limited Liability Companies (LLCs) can be treated as sole proprietors, partnerships, or corporations. The best way to ensure you have the information you need is to get a payee to complete IRS Form W-9 before you write a check.
For more information from the IRS about filing Form 1099-MISC and 1099-NEC take a look at their instructions.
As always, our team at Mason + Rich is ready to answer any additional questions. Feel free to contact us and follow us on LinkedIn to stay up-to-date on all of our posts.
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