1099s: What You Need To Know
2023… is officially here, and with it comes tax season. For small business owners, preparing and sending 1099s is an annual tax season activity.
- Do you need to send 1099s?
- Who do you send them to and when do you send them?
- Which 1099 do you send?
Who Receives It
An IRS 1099 form, referred to as an “Informational Return”, reports monies received that is not reported from an employer on a W-2 form. Examples include independent contractor income or stock dividends.
Several variations of the 1099 form exist for a variety of circumstances, but the two most common forms are the 1099-NEC and the 1099-MISC.
If your business pays more than $600 to a vendor or independent contractor, you must send Form 1099-NEC to document what it paid the Individual, Partnership, Limited Liability Company, Limited Partnership, or estate throughout the year. Basically, anyone who worked for the company — other than its payrolled employees and owners — will need a 1099-NEC from your business.
Examples of people to whom you may have to send a 1099-NEC include:
- Freelance creatives (writers, graphic designers, photographers, etc.)
- Professional service providers (consultants, lawyers, accountants, tax advisors, etc.)
- Vendors operating as sole proprietors (caterers, computer repair technicians, business remodeling contractors, etc.)
Prior to 2020, businesses issued IRS Form 1099-MISC to each vendor or independent contractor they paid $600 or more in services, prizes and awards, rents, or other income payments. That changed in 2020. Now the 1099-MISC is used for documenting items such as the following:
$10 or more paid for:
- Broker payments instead of tax-exempt interest or dividends
$600 or more paid for:
- Fishing boat proceeds
- Crop insurance proceeds
- Prizes and awards
- Medical and healthcare payments
- Attorney services (not fees)
There are exceptions to who receives the 1099-NEC or 1099-MISC form. These types of vendors do not get 1099-MISC or 1099-NEC forms:
- Those businesses with S Corporation or C Corporation entity structures
- Limited Liability Companies (LLCs) that are taxed as C Corporations or S Corporations
- Companies that sell merchandise, storage, freight, or other similar things
For the 2022 tax year the deadlines are as follows:
File to recipients by Jan. 31, 2023
File to IRS by Jan. 31, 2023
File to recipients by Jan. 31, 2023
File to IRS by Feb. 28, 2023
If sending paper copies of 1099 forms by mail to the IRS, your business must also submit Form 1096 (Annual Summary and Transmittal of U.S. Information Returns) with the filing.
It’s also important to review the state’s tax filing rules, as some states require copies of a business’s 1099s.
Software Can Help
Business owners can request 1099-MISC and 1099-NEC forms via the IRS website to receive them by mail. But there are several software solutions out there that can file electronically for you, including copies to the vendors. A few programs include:
- Track 1099
- W2 Mate
- CheckMark 1099
To help prepare for 1099 season be sure and obtain a completed W-9 from all your vendors when you first engage with them. The W-9 provides the necessary information needed to report on the 1099. It contains the vendor’s mailing information, Tax ID number, and business structure.
Sending the required 1099-MISC or 1099-NEC forms late (or not at all) can cost you. The penalties currently vary from $50 to $290 in 2023, depending on how far past the deadline the filing is. If a business gets caught intentionally not providing a payee with a correct statement for the tax year, the “intentional disregard” penalty is $580.
Understanding the who, what and when of 1099s is important for you as a small business owner. Make sure you are keeping up on the forms, requirements, and the deadlines. Start 2023 with a calendar of due dates for your small business to help stay on track. Still have questions? Reach out to Barbee Business Services, sign up for our newsletters or request a consultation.