If you are like many business owners, bookkeepers, or accountants, you turn the calendar to January and things kick into high gear with closing the books for year end and the dreaded preparation of 1099 information returns due at the end of the month! The deadline comes up quickly when you are busy with so many things on your plate!
1099-NEC (Nonemployee Compensation) forms are required to be filed annually by January 31st to non-employee businesses you have paid $600 or more for services during the prior calendar year and 1099-MISC (Miscellaneous) forms are required to be filed by January 31st for rents, prizes, awards and certain other payments that were $600 or more. There are lots of other informational returns, requirements, and scenarios, but the 1099-NEC and 1099-MISC are the most common.
You will need to collect W-9 forms (Requests for Taxpayer Identification Number and Certification) for anyone you paid for something other than goods. W-9 forms include all the information you need to prepare 1099’s: employer name, tax id, and address. They also include the entity type which helps determines if a 1099 needs to be issued. In general, 1099’s do not need to be issued to corporations, including S-corporations, so if the W-9 indicates that the entity is a corporation, you most likely will not need to issue a 1099 form. There is one common exception which is payments to law firms for legal services always require 1099’s to be issued. There are, of course, other exceptions. When in doubt, issue the 1099. If the recipient was not supposed to receive it, they can let you know the reason, and you can contact your CPA to verify this.
Why not get a head start and collect W-9’s now? Better yet, make it a policy that you won’t pay anyone for non-good purchases without obtaining the W-9 first! It is far easier to obtain W-9’s if you collect them before paying vendors. But if you did not do that, collect them now, so that you are ready come January!
You can refer to IRS instructions for more information on filing requirements and exceptions: Instructions for Forms 1099-MISC and 1099-NEC (01/2022) | Internal Revenue Service (irs.gov). You can obtain blank W-9 forms on the IRS website. If you pay a vendor less than $600 in total for the year, you won’t need the W-9, but the easiest policy is to collect the form regardless, so you have it in case you do pay the vendor $600 or more.
Keep in mind that information return penalties may apply if you don’t file information returns or provide payee statements on time. Here is a link to IRS information regarding information return penalties: Information Return Penalties | Internal Revenue Service (irs.gov).
Getting ahead of this now should alleviate some stress come January!
NOTE: This article refers to the most common 1099 reporting scenarios. There are many IRS rules and exceptions. You should read IRS instructions and contact your CPA to discuss any questions you have about information return requirements.
