1099 Rules

*2020 Form 1099 Deadline is Jan 31st, 2021*

File in 2 simple steps:

       1) Fill-in 1099 Worksheet

       2) Email worksheet to: Accounting at SK Enterprises(Accounting@skeusa.com)

        You're DONE! We will file the 1099s with the IRS.


1099 Information:

If you pay independent contractors, you may have to file Form 1099-MISC and/or 1099-NEC, to report payments made. The good news is that we can file these forms for you.

How do you know if you need to file a form 1099? If the following 3 conditions are met, you must generally report a payment as nonemployee compensation:

1.      You made the payment to someone who is not your employee

2.      You made the payment to an individual, partnership, or estate

3.      You made payments to the payee of at least $600 during the year

How do I know to file a form 1099-MISC or 1099-NEC:

1099-MISC

File Form 1099-MISC, Miscellaneous Income, for each person in the course of your business to whom you have paid the following during the year:

  • At least $10 in royalties (see the instructions for box 2) or broker payments in lieu of dividends or tax-exempt interest (see the instructions for box 8)
  • At least $600 in:

1.  Rents (box 1);

2.  Prizes and awards (box 3);

3.  Other income payments (box 3);

4.  Generally, the cash paid from a notional principal contract to an individual, partnership, or estate (box 3);

5.  Any fishing boat proceeds (box 5);

6.  Medical and health care payments (box 6);

7.  Crop insurance proceeds (box 9);

8.  Payments to an attorney (box 10) (see Payments to attorneys, later);

9.  Section 409A deferrals (box 12); or

10. Nonqualified deferred compensation (box 14).

1099-NEC

File Form 1099-NEC, Nonemployee Compensation (NEC), for each person in the course of your business to whom you have paid the following during the year:

  • At least $600 in:
  1. Services performed by someone who is not your employee (including parts and materials) (box 1)
  2. Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish (box 1).
  3. Payments to an attorney (box 1). 

So, what information do I need to get? Normally when you are going to send someone a 1099-MISC or 1099-NEC, you first ask them to fill out an IRS Form W-9. It’s a simple, 1-page form that asks for:

  • Business and/or Individual’s Name and Address
  • Business and/or Individual’s status (i.e, corporation, LLC, sole proprietor, etc.)
  • Social Security Number (for sole proprietorships and individuals)
  • Tax ID Number (for applicable business entities)

Does this apply to everyone? No. Some payments are not required to be reported on Form 1099-MISC or 1099-NEC, although they may be taxable to the recipient. Payments for which a Form 1099-MISC or 1099-NEC is NOT required include:

  • Generally, payments to a corporation
  • Payments for merchandise, telegrams, telephones, freight, storage, and other similar items
  • Rental Payments to real estate agents (see Regulations section 1.6041-1(e)(5), Example 5)
  • Wages paid to employees (report on Form W-2, Wage and Tax Statement);
  • Military differential wage payments made to employees while they are on active duty in the Armed Forces/other uniformed services (report on Form W-2);
  • Business travel allowances paid to employees (may be reportable on Form W-2);
  • Cost of current life insurance protection (report on Form W-2 or Form 1099-R,);
  • Payments to a tax-exempt organization

Where can I find a W-9 form? You can get one from the IRS’s website-  www.irs.gov/pub/irs-pdf/fw9.pdf.

On a W-9 form, the Social Security Number and Tax ID Number are key. Without these, the IRS can’t properly match up the 1099-MISC or 1099-NEC forms that you report with the tax returns filed by the people and businesses you gave them to. If you don’t prepare and file 1099-MISCs and/or 1099-NECs, or if your data is wrong, it will be on YOU to fix it or face fines and penalties, unless, you can show that you properly reported what you were given.

What are the penalties?  For unreported or incorrect 1099-MISCs or 1099-NECs, the following penalties will be in effect for the year 2018 and are applied per 1099:

  • $30 penalty for filing a 1099 not more than 30 days late;
  • $60 penalty for filing a 1099 more than 30 days late and before August 1;
  • $100 penalty for filing a 1099 on or after August 1;
  • $250 penalty for intentional failure to file.

Does this apply to both personal and business expenses? No. The requirement to collect Form W-9s and send out 1099-MISCs and 1099-NECs is limited to those individuals and businesses paying expenses connected to their business.

Does this apply to goods I buy (hardware, appliances, etc.) as well as services? No. But understand that information reporting at the source is a major issue and may become more inclusive in the future by expanding the definition of who gets a 1099.

Who should I send W-9 forms to? You should send them to all service providers connected to your business that you are expecting to pay more than $600. Our advice is to obtain the tax data you might need from everyone, even if a 1099-MISC or 1099-NEC is not required.

When is the best time to ask someone for a W-9? Before you pay them. The best time is now, or as soon as you make your first purchase of services from someone. The later you leave it, the more difficult it can be. You may hire a contractor for a one-time job in April, only to find that company is no more or that the individual has moved when you try to send a W-9. Get a completed W-9 prior to issuing your check!

What if a company or an individual won’t give me a W-9? This is a tough decision. If you don’t have a Social Security Number or Tax ID number, you will be the one paying for it. If someone won’t fill out a W-9, you may need to rethink doing business with them. Or, maybe you can make payment of their bill contingent upon receiving a signed Form W-9.

What if someone gives me incorrect information? Your best defense is a signed W-9, showing that you correctly reported the information given. That puts the error back on the individual or business who initially gave you the W-9.

What happens if I pay a service provider and I don’t obtain correct W-9 information needed to produce a 1099? If this happens, you may be subject to the Backup Withholding rules. (See below for details)

What is Backup Withholding?  Payers must file information return Form 1099 with the IRS. For 1099 recipients, the information return shows how much you were paid during the year. It also includes your name and Taxpayer Identification Number (TIN). These payments are generally not subject to withholding. However, "backup" withholding is required in certain situations.

Payments subject to backup withholding: Backup withholding can apply to most kinds of payments that are reported on Form 1099. These include:

·         Interest payments

·         Dividends 

·         Patronage dividends, but only if at least half of the payment is in money 

·         Rents, profits, or other gains

·         Commissionsfees, or other payments for work you do as an independent contractor 

·         Royalty payments, and

·         Certain other payments.

What are the backup withholding rules?  Before a recipient begins to collect payments which will be reported on Form 1099, Form W-9 must be completed accurately. The recipient also must certify (under penalties of perjury) that their TIN is correct and that they are not subject to backup withholding. The payer must withhold federal income tax at a flat rate of 28% in the following situations:

·         The recipient does not give the payer their TIN in the required manner

·         The IRS notifies the payer that the TIN you gave is incorrect

·         You fail to certify that you are not subject to backup withholding when required

·         The IRS notifies the payer to start withholding on interest or dividends because you have underreported interest or dividends on your income tax return. The IRS will do this only after it has mailed you four notices over at least a 210-day period.

What do I do with any backup withholding funds I have had to reserve as described above? Backup withholding is deposited like other federal taxes and is accounted for by reporting the tax on Form 945.

Is there a problem if I don’t have this information and I don’t produce Form 1099?  Yes there is. IRS could disallow deductions taken if 1099’s have not been produced when required. Monetary penalties for non-compliance may be asserted and are discussed under IRC §6672.

So what is the final word on all of this?  As a good business practice, get W-9 information from everyone your business receives services from. If you don’t and you are examined, you may lose all deductions associated with vendors who you should have issued a 1099 to but failed. 

If vendor W-9’s are completed accurately, you will not be subject to backup withholding. If you are subject to backup withholding, you’ll need to begin preparing Form 945. If you are required to file Form 945 and you, don’t you will be subject to both failure to file and failure to pay penalties.


Featured Articles


Subscribe to our Emailed Newsletter