By Stacey J. Gorowitz, CPA, MBA
As part two of our series on tax forms, this article explains the purpose of Form 1099-MISC, its filing requirements and upcoming changes for 2020.
Purpose of Form 1099-MISC
Form 1099-MISC is the annual information return form that businesses use to report miscellaneous payments made to vendors or contractors, including payments for non-employee compensation, rents and royalties.
Why are these forms required in the first place? The payments made to vendors are a tax-deduction to your business. By issuing 1099s, you not only verify your expenses but also help the IRS keep track of who received the income and match that to their income tax returns.
Although there are many types of information returns that businesses are required to file, the most common for our business clients is the Form 1099-MISC. The following summary describes basic rules to follow in order to properly file Form 1099-MISC for 2019.
Filing requirements for Form 1099-MISC
Generally, you should include all vendors that are not incorporated to whom you’ve paid $600 or more during the calendar year. Your list likely includes individuals, partnerships, LLCs, LLPs and some corporate entities, including:
- Contractors
- Non-employees
- Rental payments for office space, equipment or machinery
- Royalties paid in the amount of $10 or more
- Attorneys, regardless of whether the attorney/firm is incorporated or not incorporated
- Customers with whom you had direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment
If 1099s report non-employee compensation in Box 7, 1099-MISCs are required to be prepared and sent to vendors by January 31, 2020 for both paper and electronic returns. However, the corresponding 1099s and summary Form 1096 are required to be submitted to the IRS by February 28, 2019.
For all other reported payments, file Form 1099-MISC by February 28, 2020, if you file on paper, or March 31, 2020, if you file electronically.
Be aware that penalties apply!
If the rule requiring that you file 1099s is not compelling enough to earn your attention, be aware that stiff penalties may be imposed for failure to file the forms, as well as failure to furnish them to the recipients of the payments. Although most penalties range from $50 to $270 per information return, the maximum penalties can be as high as $3,339,000 per year!
Penalties are also increase over time. For 2019 filings, penalties are applied at $50 for information return reports filed after the deadline but within 30 days, and they increase to $110 for returns filed after 30 days beyond the deadline but before August 1, 2020. Information return reports filed incorrectly after August 1, 2020, or not at all, will have a penalty of $270 per form. A business can be charged a maximum penalty of $3,339,000 per year ($1,113,000 for small businesses).
Who NOT to issue Form1099-MISC to
You do NOT include amounts paid to vendors via credit card or debit card in the totals reported on 1099s. The credit and debit card companies will already be reporting this income to vendors.
Remember: this is a requirement that applies to businesses. If you make these or similar payments as an individual, not a business, you are not required to issue a 1099.
Upcoming changes for 2020
While the Form 1099-MISC remains largely unchanged from prior years, the IRS has recently released a draft of a new form, Form 1099-NEC, which will be used to report payments for Nonemployee Compensation paid in 2020. Nonemployee Compensation was previously reported using Form 1099-MISC, Box 7, Nonemployee Compensation (NEC).
This new Form 1099-NEC will only be used for reporting NEC, while the 1099-MISC will continue to be used for other types of payments traditionally reported on the Form 1099-MISC.
For official general instructions for Forms 1099-MISC and 1099-NEC, visit:
https://www.irs.gov/pub/irs-prior/i1099msc–2020.pdf.
We recommend that before engaging in business with new vendors, you ask them to complete Form W-9, which can be found on the Internal Revenue Service (IRS) website at https://www.irs.gov/pub/irs-pdf/fw9.pdf. This will ensure that you have the necessary information to complete and submit 1099s that meet the IRS requirements.
If you have questions about your Form 1099 requirements or any other tax matter that affects your business, S.J. Gorowitz Accounting & Tax Services is here to help. Please contact us at any time for more information and assistance.
