Form 1099 is an information reporting requirement for payers of specific categories of payments to recipients. Businesses that make any of the specified categories of payments should request from the recipient of these payments a completed and signed form W-9 and keep it on file for their records before issuing any payments. A Form W-9 includes the recipient’s name, address, type of entity, and federal identification number. If a recipient does not provide the business with a valid Form W-9 the business must then withhold federal tax of 24% and report the withholdings on form 945 and continue to withhold until provided with a federal identification number.
There are many 1099 categories, for example 1099-INT and 1099-DIV are used to report interest and dividends, respectively. Form 1099-MISC is used to report any payment of $600 or more for rental, prizes and awards, medical and healthcare payments. Payments made for royalties should use 1099-MISC. However, it does not need to reach the $600 minimum threshold to be reported.
Beginning in 2022, businesses that must file 1099-K (credit card companies and third-party processors who report transactions they process for retailers or other third parties) will need to supply a 1099-K to any recipient in which they processed transactions of $600 or more for goods or services. The threshold for 2021 was only $20,000 of gross revenue and 200 individual transactions.
One of the most used 1099 forms is the 1099-NEC (Non-employee Compensation). On this form, payers need to report payments to any individual, limited liability company (except those treated as a corporation), and partnership who performed services of $600 or more (non-corporate recipients). For example, independent contractors who are not your employees and performed a service during the year must receive 1099-NEC. Parts or materials used in the performance of these services should also be included in the amounts paid, unless those amounts are separately stated on the invoice; in this case, only the labor portion would need to be reported. Payments for professional services, such as accountant and attorney fees should also be reported on 1099-NEC. The $600 payment threshold applies to cash, check or ACH payments. Payments made by credit or debit card are not required to be reported.
All 1099 forms need to be mailed out to the recipient no later than January 31. Copy A of the 1099’s along with Form 1096 (summary page of all 1099s issued) is reported to the Internal Revenue Service and respective states authority no later than February 28, if filing by paper and March 31 if filing electronically. Failure to file these reports could result in an IRS penalty ranging from $30 to $100 for each form not filed on time.
