1099 Reporting

 

The Internal Revenue Service requires businesses to submit informational returns when certain payments (or withholding) are made during the year. The following is a summary of filing requirements for some of the different 1099 forms, the due dates, and possible penalties for incorrect filing.

Employee v. contractor: Which is right (and legal) for your business

Businesses are constantly evolving how they operate in order to meet the fast-paced changes coming from customers and the marketplace. Further, individuals are increasingly taking advantage of the income they can earn from the gig economy. These factors have more businesses looking for contractors and more workers looking for a contracting arrangement than ever before.

In order to determine what is right, and legal, for the business, there are a series of stress tests the business should consider. Here is a simple example:

Question	Yes	No
Is the individual directed on when, how and where to perform the work?
Must the individual follow a particular method when performing the work
Is the employee evaluated on skills (Yes) or results (No)?
Does the worker use company-provided tools?
Does the company pay expenses?
Is the worker paid by the hour, week, or month vs. lump sum?
Is the worker offered benefits such as insurance, pension, or PTO?
Is the relationship with the worker and the company indefinite?
Is the worker performing key business activities/are they vital to the regular business of the company?
TOTAL

Generally, more responses in the ‘Yes’ column results in the worker being treated with employee status, and more ‘No’ responses are considered independent.

 

Form 1099 –MISC

Miscellaneous Income

File Form 1099-MISC for each person to/for whom you have:

• Paid at least $600 in rents, prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, or, generally, the cash paid from a notional principal contract to an individual, partnership, or estate
• Paid gross proceeds of $600 or more to an attorney, regardless of the entity type.  This refers to proceeds awarded as a settlement.  Fees to an attorney are reported on Form 1099-NEC
• Paid any fishing boat proceeds
• Paid at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest
• Section 409A deferrals of at least $600 for the nonemployee under all nonqualified plans
• Nonqualified deferred compensation
• Sales totaling $5,000 or more of consumer products for resale, on buy-sell, deposit-commission, or any other basis.  Payors may use form 1099-MISC or 1099-NEC to report this information.

Only payments made in the course of your trade or business require filing of Form 1099-MISC. Personal payments are not required to be reported.

Generally, Form 1099-MISC is not required for payments made to corporations including S-Corporations, payments made by credit card, rent paid to real estate agents, payments of less than $600, or business travel allowances paid to employees.

For more information, visit https://www.irs.gov/instructions/i1099mec

 

Form 1099-NEC

Nonemployee Compensation

File Form 1099-NEC for each person to/for whom you have:

• Paid at least $600 for services performed by someone who is not your employee. Parts and materials can be included if invoiced with the services
• Paid at least $600 in cash payments for fish purchased from anyone engaged in the trade or business of catching fish
• Paid at least $600 to an attorney for legal services
• Withheld any federal income tax under the backup withholding rules regardless of the amount of the payment

Only payments made in the course of your trade or business require filing of Form 1099-NEC.  Personal payments are not required to be reported.

Generally, Form 1099-NEC is not required for payments made to corporations including S-Corporations, payments made by credit card, rent paid to real estate agents, payments of less than $600.

For more information, visit https://www.irs.gov/instructions/i1099mec

 

Form 1099-INT

Interest Income

File Form 1099-INT for each person to/for whom you have:

• Paid more than $600 in interest in the course of your trade or business
• Withheld and paid any foreign tax on interest, regardless of the amount of the payment
• Withheld (and did not refund) any federal income tax under the backup withholding rules, regardless of the amount of the payment

Only interest that is paid in the course of your trade or business is reported on form 1099-INT.  Form 1099-INT does not need to be filed for payments made to exempt recipients, including corporations, or for interest excluded from reporting.  Payments to banks or credit unions are not reportable.

For more information, visit https://www.irs.gov/instructions/i1099int

 

Form 1099-DIV

Dividends and Distributions

File Form 1099-DIV for each person to/for whom you have:

• Paid dividends (including capital gain dividends and exempt-interest dividends) and other distributions on stock of $10 or more
• Withheld and paid any foreign tax on dividends and other distributions on stock
• Withheld any federal income tax on dividends under the backup withholding rules
• Paid $600 or more as part of a liquidation

Form 1099-DIV is required for all taxable capital gains and dividends paid to an investor, even if they have been reinvested without being paid directly to the investor.  This also applies to non-taxable distributions, federal income tax withheld, foreign tax paid and foreign source income from each investment account held by a fund company. Form 1099-DIV does not need to be filed for payments made to exempt recipients, including corporations, or for dividends excluded from reporting.

For more information, visit https://www.irs.gov/instructions/i1099div

 

Form 1099-K

Payment Card and Third-Party Network Transactions

A payment settlement entity (PSE) must file Form 1099-K for payments made in settlement of reportable payment transactions for each calendar year. Payments you make that would otherwise have qualified as reportable on a 1099 do not need to be reported if paid by credit card.  The PSE is responsible for reporting these payments.

For more information, visit http://www.irs.gov/pub/irs-pdf/i1099k.pdf

 

Exceptions

There are exceptions for all of these informational returns, please refer to the links for further instructions.

 

Due Dates

Copy B of the 1099-INT, 1099-DIV, 1099-MISC, 1099-NEC, and 1099-K forms should be provided to the recipient by January 31, 2025.

Copy A of the 1099-NEC should be filed with the IRS by January 31, 2025.

Copy A of the 1099-INT, 1099-MISC, and 1099-K should be filed with the IRS by February 28, 2025 if paper filed, or March 31, 2025 if electronically filed.

 

Extensions

There is an extension available under limited circumstances, please contact us if you need more time to file so we can assess whether you qualify to apply for an extension.

 

Penalties

If you fail to file a correct information return by the due date and you cannot show reasonable cause, you may be subject to a penalty. The penalty applies 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. The penalty also applies 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. If you file paper forms, do not download the forms from the IRS website because they are not machine readable. You must order them by calling 1-800-TAX-FORM (1-800-829-3676) or through www.irs.gov/Businesses/Online-Ordering-for-Information-Returns-and-Employer-Returns.The amount of the penalty is based on when you correctly file an information return. The penalties are:

• $60 per information return if you correctly file within 30 days (by March 30 if the due date is February 28); maximum penalty $664,500 per year ($232,500 for small businesses).
• $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).
• $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).

For more information, visit https://www.irs.gov/pub/irs-pdf/i1099gi.pdf