Sending Form 1099-Misc and 1099-NEC
(Beginning for tax year 2020, the IRS has created a new form called a Form 1099-NEC which replaces the use of Form 1099-Misc for Non Employee Compensation. The rules and practices governing 1099-Misc blogged about below apply to the use of the new Form 1099-NEC.)
A common misconception about Form 1099-Misc (and now the 1099-NEC) is that you only send them to official “Subcontractors”.
“Subcontractor” — a Contractor subbing out work to another Contractor—thus the word “Subcontractor”. You would not think of the photographer you used to take headshots of your employees as a “Subcontractor”, but that photographer may need a 1099.
The same misconception applies to the term, “Independent Contractor”.
What you should think of for the common 1099 is “Non-Employee Compensation” or “A vendor that you use for services”. Those phrases will help identify the businesses/sole-proprietors that require a 1099.
To whom do you have to send a 1099?
Each person/business to whom your business has paid at least $600 during the year for services, including but not limited to:
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- Contractors/Subcontractors/Independent Contractors
- IT services
- Advertising/Marketing/Photography/Printing
- Attorneys/Accountants/Legal Professionals/Engineers
- Repairs/Installation of equipment or machines
- Office assistance not on payroll
- Office rent
- Labor that was not paid through payroll
The above list is the most common usage of the 1099 for our clients. The 1099-Misc is also used to report payments for Royalties, Fishing Boat Proceeds, Medical & Healthcare Payments, Fish Purchased for Resale, and other more obscure items.
You are not required to send 1099s to S-Corporations or C-Corporations.
A best practice is to collect information from your vendor by having them fill out Form W-9—whether you think they need a 1099 or not. The filled-out W-9 is essential to staying compliant to this requirement.
The IRS will issue penalties as high as $270 per form if 1099s are filed late or not filed at all.
Most of our bookkeeping engagements include Prospect’s 1099 service. We track and issue the 1099s to your vendors by the due date every January. However, you may be asked to get your vendors to fill out that Form W-9. Timely responding to our requests is helpful and ensures we meet that deadline.
Update: The IRS has released a new form specifically for “Non-Employee Compensation”, which is the main pay type used by our clients on a 1099-Misc. The new form is a Form 1099-NEC. The rules mentioned in this blog are still in effect and can be applied to Form 1099-NEC.
