How do you know if you need to issue 1099’s?
Many of our clients who own or run a business have asked about the IRS requirements for issuing Forms 1099-MISC. This is a subject that comes up year after year. Therefore, in an effort to keep our clients in accordance with their financial responsibilities, we have written this letter to help clarify this topic. Please bear in mind that this is a general guideline and may not encompass every circumstance.
Who needs to issue 1099’s?
You must issue a 1099-MISC if you paid a non-employee individual or business (other than an incorporated business) $600 or more to provide services in the course of your trade or business. This only applies to payments made for a trade or business. It does not include personal payments made. For example, if you hire a landscaper to maintain your lawn at your home, you do not issue a 1099-MISC. However, if your business hires a landscaper to maintain the lawn at the business office, and payments total $600 or more for the year, you would be required to issue a Form 1099-MISC.
How do I know if the vendor is incorporated (therefore not needing to receive a 1099-MISC)?
When you contract with an individual or a business to perform services for your business, you should have them provide you with a Form W-9. The vendor has to indicate its federal tax classification on this form. In the event that the vendor is not a corporation, the W-9 contains all of the information you will need to issue a 1099-MISC. There is a noteworthy exception to the rule that corporations are not issued 1099’s. If a corporation provides legal services, these attorneys’ fees must be reported on Form 1099-MISC.
What is the deadline for issuing 1099’s?
The deadline to furnish recipients with their copy for payments is usually February 1. and the deadline to file copies with the IRS is March 1 (dates vary each year if the deadline falls on a non-business day).
Is there a penalty for failure to file 1099’s?
Yes, there is a penalty that the IRS can impose for failure to file 1099’s. It ranges from $30 per 1099 to $250 per 1099.
We hope that this has provided you with some clarification on the subject of issuing 1099’s. Please feel free to contact our office with any questions on this matter.
If you find that you are required to issue 1099’s, contact Hedley & Co to prepare these forms for you in January.