If you’re a business owner, you are likely aware that you are responsible for filing Form 1099 to report payments made to independent contractors and other non-employees and for miscellaneous payments.
Form 1099 is an information return that tells the IRS and other government agencies that the person or entity named in the form has received taxable payments during the year. It’s one of the IRS’s primary methods to uncover underreporting by those who are self-employed.
In 2020, the IRS made a distinction between 1099 forms to keep nonemployee expenses separate from miscellaneous expenses and to clear up some confusion with due dates.
Now, Form 1099-NEC is used to report non-employee compensation and Form 1099-MISC is used to report other miscellaneous business payments.
You are responsible to file a 1099-NEC (nonemployee compensation) form if you:
Made payments of $600 or more
You are not required to report payments made to corporations and LLCs treated as C or S Corporations.
Note that the $600 threshold refers to cash payments, not accrued expenses, so if you haven’t paid yet, you’re not required to report it.
One additional important note…if you paid a nonemployee using a credit card, debit card, or through a third party like PayPal, you do not need to file a 1099 form.
As a best practice, businesses should always collect a W-9 form before issuing payments to any contractor who may later require a 1099-NEC. Form W-9 is a request for a taxpayer’s identification number and gives you the information you need to file 1099 forms. By collecting W-9 forms upfront, you avoid the hassle of having to chase contractors down come January.
You must file 1099-MISC forms to report miscellaneous payments including:
|Form||Send to Recipients||IRS Filing by Mail||IRS E-Filing|
|1099-NEC||Jan. 31, 2023||Jan. 31, 2023||Jan. 31, 2023|
(no data in Boxes 8 or 10)
|Jan. 31, 2023||Feb. 28, 2023||March 31, 2023|
(with data in Boxes 8 or 10)
|Feb. 15, 2023||Feb. 28, 2023||March 31, 2023|
If your business has to file 250 or more 1099 forms, the IRS requires you to file them electronically. However, the IRS encourages all filers to file electronically rather than mailing paper forms. Also, be aware that the IRS has proposed reducing the current 250-return threshold to 100 in 2022 and 10 in 2023.
Form 1099 is a multi-part form. Here is what to do with each.
When you file a 1099 form, you must also file Form 1096, which is a summary of all the Forms 1099 you file. This is the IRS, after all!
If a business fails to issue a form by the 1099-NEC or 1099-MISC deadline, the penalty varies from $50 to $290 per form, depending on how long past the deadline the business issues the form. There are maximum fines per year for small businesses. If a business intentionally disregards the requirement to provide a correct payee statement, it’s subject to a minimum penalty of $580 per form or 10% of the income reported on the form, with no maximum penalty for intentional disregard.
|$50||More than 30 days late|
|$110||More than 30 days late but before Aug. 1, 2023|
|$290||Filing on or after Aug. 1, 2023|
|$580||Intentionally neglecting to file (minimum)|
For complete IRS instructions on filing Forms 1099-MISC and 1099-NEC, visit this IRS page.
Filing 1099 forms can be a time-consuming and tedious task, depending on the number of independent contractors you engage and how many miscellaneous expenses you are required to report. However, when you enlist ARI as your outsourced accounting firm, we manage these filings each year to ensure your business is compliant with all IRS reporting requirements.
If you would like to learn more about the services we offer, contact us today. In the meantime, discover 10 important benefits of outsourcing your accounting and bookkeeping needs.