The calendar year brings a lot of questions about who exactly should receive a 1099-MISC. Below we have addressed what you need to know to ensure you are following the tax laws appropriate for your business:
Who is required to receive a 1099-MISC?
A company or business owner who makes payments for services performed for a trade or business by individuals who are not treated as its employees are required to file 1099- MISC. These payments may be for rents, awards & prizes, payments for legal services and general services (including parts & materials). The Form 1099-MISC is required when payments made are $600 or more.
A Form 1099-MISC is NOT REQUIRED to be provided to corporations which includes both S-corporations & C-corporations and limited liability companies taxed as S or C Corps.
The following are some exceptions in that these payments even though made to a corporation are still required to issue a 1099-Misc.
- Attorney and accounting fees for services rendered
- Gross proceeds paid to an attorney (such as for legal settlements)
- Payments for-profit medical care providers
In addition, a 1099-MISC is not required for non-business personal services.
Where do you get the information to file a 1099-MISC?
The information needed to complete Form 1099-MISC is generally collected by a W-9 which can be filled out by the contractor. It is highly recommended to have the W-9 be completed by the contractor prior to the services being rendered. Below is the information needed for the 1099-MISC:
- Legal name of contractor
- Business name if different from the contractor’s name.
- Contractor’s federal tax classification
(sole proprietor/single member llc, C Corp, S Corp, Partnership or Trust/Estate)
- Exemption codes, if applicable
- Tax Identification number (either EIN or SSN)
When do you file a 1099-MISC?
The filing deadline to the contractor, Internal Revenue Service and Indiana Department of Revenue is January 31 of the following year. The 1099-MISC must be postmarked by this date. Penalties apply for failure to timely file 1099s which penalties increase the later the filing occurs.
Failure to obtain or refusal to provide W-9.
We often hear from clients that they failed to obtain a W-9 or the contractor refuses to provide a completed W-9. Failure to provide a W-9 when requested violates IRS regulations. The paying company needs to make an effort to get the EIN information to properly complete the Form 1099-MISC. If it cannot do so, it completes the 1099 form without the information, printing “Not provided” in the box where the EIN or Social Security Number normally appears. This informs the IRS that the paying company attempted to obtain the information and wasn’t successful.
The payer then has the option to continue to work with the contractor but only under the condition that all future payments are subject to backup withholding, meaning the individual doing the work is paid the agreed upon amount less the applicable withholding taxes.
Please reach out to our team at 317-636-5561 or to me by email at firstname.lastname@example.org with any of your 1099-Misc questions.