More than likely, if you are a business owner you have heard of 1099s. You have either received them or have been told you need to send them out.

I want to take the time in this article to clear any confusion and ensure you have everything you need to know about 1099s because it won't be long (*cough* January *cough*) before you need to start preparing them and sending them out.

What Is the One Thing I Need to Make Sure I Know About 1099s?

If your business pays a sub contractor, vendor, etc (individual or another business) over $600 in a year you need to send them a 1099-NEC. If you walk away with anything from this, just know that if you pay a contractor you need to request a W9 from them so that you can send a 1099 at year-end.

If you are a contractor that has received a 1099-NEC you must report this income (of course) on your tax return. The IRS gets a copy of the same form and will match to ensure they see that income reported.

Note: You should always report all income you received, whether or not you got a 1099 sent.

Okay, now lets dig a little deeper. I just wanted to ensure I got the important piece announced up front.

When Do I Need to File a 1099-NEC?

Again, if you paid a contractor $600+ in total for a year you would need to send them a 1099-NEC. This could include an individual, sub contractor, company, vendor, etc. and could be for services performed, parts and materials, etc.

Note: This is an accumulative, so if you send three payments of $250 for a total of $750 throughout the year, a 1099-NEC would be required.

• Exceptions (1099-NEC NOT required to be filed): 
  • Payments to C or S Corporations
    • Note: This exception does not apply for payments to attorneys for legal services.
  • Employees – Instead you should be submitting a W-2 for all employees.
  • Payments for merchandise, telephone, freight, or storage.
  • Payments to non-U.S. citizens performing work outside of the U.S.
  • Payments made via Credit Card or PayPal – Instead the merchant processor would report those to the vendor via a 1099-K. 

This means if during the normal course of business you pay someone via check, wire, cash, Venmo, Zelle, etc you more than likely will be required to send them a 1099-NEC unless you meet one of the exceptions mentioned about.

The person or company that is paying the contractor is the one that files the 1099-NEC.

Note: If you paid a contractor for personal services, then a 1099 would not be required. As an example, if you put a new deck on your house, you would not send a 1099.

What is the Typical 1099-NEC Process?

• Step 1 – Collect a W9 from all contractors you pay (even if under $600, as it might get above that with future payments). This is important. One rule of thumb, before you pay ANYONE, collect a W9 from them. 
• Step 2 – If a 1099-NEC is required (see notes above) then you as the business would prepare it. All information needed to prepare a 1099 would be found on the W9.
• Step 3 – Send a copy of the Form 1099-NEC form to the contractor.
• Step 4 – File a copy of the Form 1099-NEC with the IRS and State (If Required).

For us internally here, we use a software called Track1099 to handle the preparation and filing of those 1099s.

Again, if you are contractor that has received a 1099-NEC this must be reported as income on your personal (or business) tax return.

Note: If the payment was to a non-US citizen for work performed outside of the US you would not need to send a 1099-NEC but you should still be collecting a W-8BEN (Individuals) or W-8BEN-E (Entities) to serve as your proof that they are foreign.

When Does the 1099-NEC Need to Be Filed By?

1099-NEC’s must be filed with the IRS and sent to the recipient by January 31st of the following year. 

Note: If January 31st falls on the weekend it would be the next business day.

What Are the Penalties for Not Filing a 1099-NEC?

This depends on how late you are…

• File within 30 days past deadline: $50 per
• File more than 30 days late but before August 1st: $110 per
• File after August 1 or not at all: $280 per
• Intentional Disregarded: $570 per

What Other Types of 1099 Forms Are There?

Simply put, a 1099 is an informational filing form used to report non salary income to the IRS.

There are over 15 different types of 1099 forms that are used for various purposes.

Some of the most common 1099 forms are: 

• 1099-MISC: Used for the other items including: rent, royalties, prizes/awards, other income, etc.
• 1099-INT: Financial institutions are required to file this form if they pay you more than $10 in interest during the year.
• 1099-K: Issued by third-party payment processors (Ex: Credit card, PayPal, etc) if payments over the year total $600 or more. (Previously this threshold was $20,000)
• 1099-DIV: This form reports distributions, such as dividends, capital gain distributions, etc.
• 1099-B: Happens when you sell stock, showing the date of the sale, cost basis, etc.
• 1099-G: Used to report unemployment compensation, state tax refunds, etc.
• 1099-R: Reports a distribution from a retirement plan.

The most common that we see business owners needing to deal with are the 1099-MISC (typically rent) and the 1099-NEC (contractors, vendors, etc.) 

Summary

• Always grab a W9 or W8 (International) from all contractors, vendors, etc that your pay. You never know when you may need it and it can be hard to get it after the fact.
• Total payments throughout the year totaling $600 or more trigger the form requirement, unless certain exceptions are met.
• Use 1099-NEC for contractors and vendors and 1099-MISC for rent.
• IRS Downloads:
  • IRS: Form W9
  • IRS: Form W-8BEN (Individuals) or Form W-8BEN-E (Entities)
  • IRS: Instructions for Forms 1099-MISC and 1099-NEC
  • IRS: Form 1099-NEC
  • IRS: Form 1099-MISC