Do you know how the IRS defines which workers need a 1099? Do you know how to file them? Do you know what the penalties are for filing late or for ignoring them? If you're not on our newsletter list, here's what you missed.
1099s are to be postmarked by January 31st if mailing or submitted by January 27th if you are e-filing.
Why do I have to file a 1099 MISC?
The IRS requires businesses to send out Form 1099 MISC to small businesses or independent contractors to whom you paid $600 or more for services in the calendar year. You must send one to anyone you paid for services if they are an LLC, a sole proprietor or a partnership. C-corps and S-corps are exempt from receiving them.
The IRS checks the amounts sent in against that individual's tax return to make sure that they are claiming all of their income.
If you are not sure whether the contractor qualifies to send a 1099, ask for a W-9 to see how their company is structured. If you send one for an S-corp by accident, the IRS does not fine you if you send one that is not needed.
If you pay cash to someone and then do not fill out a 1099, you may not deduct that expense from your books.
What do I do with the 1099s I receive?
Keep them together in a file and have them ready for your CPA to review. You don't file them with your return, you just hold on to them.
Keep them for 5 years.
What are the types of 1099s?
1099-MISC is the one that employers are required to file - you will more than likely use box 7 "non-employee compensation" and also Box 1 "rents" if you pay rent to someone.
1099-K - this form is sent by merchant services or third-party processors like Visa, PayPal, Amazon or Square. You will receive one of these if you accept credit cards for services that qualify for 1099 Misc.
1099-INT used for interest income - Example - you gave a loan to someone or another business and they paid you interest in excess of $10. The borrower should send you a 1099-INT.
There are many more types but most are for very specific situations.
What to exclude from the 1099 MISC?
Payments made by credit card, debit card or third party like PayPal. If you are using QBO and QuickBooks merchant services and you write "credit" or "debit" in the payment method, QBO knows not to include those payments in calculating the 1099! Pretty cool, huh?
Beware of VENMO! Venmo does NOT send out the 1099 for you - you will need to include these payments in the 1099 you calculate if you paid someone through Venmo in 2018.
Purchases of goods or rental equipment. If you pay someone to landscape, then only their labor goes on the 1099, not cost of the goods.
You do not need to report freight or storage.
Do not send a 1099 to an S corp, C corp or a nonprofit. (Or if a partnership LLC is filing as an S corp) The W-9 is your friend here - please refer to it!
Workers who perform work outside the US and are NOT US citizens. (Example - you outsource some work to a firm in India)
Can I file 1099s myself? How?
We recommend e-filing since as it cuts down on time and fraud. Everything goes much more smoothly if you e-file! The biggest benefit is that you will receive instant confirmation of filed forms.
If you have QBO Plus, you can e-file them yourself directly inside QBO! Watch this quick video from Intuit to show you how. We can help with the set up if you need us! But you must understand the rules of filing or it could result in penalties.
You can't just go to the IRS website and download forms and print them and mail them - ohh nooo - this would be too easy. You have to pre-order forms from an office supply store if you want to print and mail them. (It's special paper, I am told.)
You can walk into the IRS office and pick up triplicate forms for the 1099 MISC and then hand-write them (They won't fit into your printer as they were created in the '80's.).
If you have more than 250 to file, you MUST file them electronically.
Do I file a 1099 with the state where my company is registered?
No - if you are a TN registered company.
Yes - if you are registered in GA. Here is how to efile in GA.
What are the penalties for not filing or for late filing?
If a business intentionally disregards filing the 1099s then it can be a $260 per 1099 missed with no cap on the fees.
If you file late it will be a $50 charge if it is within 30 days late, $100 if more than 30 days and before August 1, 2019 and then $260 per form for all forms filed after Aug 1, 2019.
Click here for the 1099 IRS penalty fees chart.
What are the rates if you file them for me?
If you would like us to file your 1099s for you, please call our office to get a quote as it depends upon how many you are filing. Please note - we do charge separately for our time if you need us to track down information for you such as contractor EINs or addresses or other necessary details.
1099 vs. W-2
What if I want to hire someone but don't want them to be on my payroll?
If you are considering hiring someone but do not know whether they qualify to be a 1099 contractor instead of an employee (which is a W-2), you must be very careful in this decision. The IRS and the Dept of Labor have specific definitions and they can be confusing or conflicting sometimes.
Businesses must weigh several factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another. If it is not clear to you, please contact us or your CPA to help you make your determination.
Check out the IRS definitions for each. This excerpt explains what they call "Common Law Rules" in defining terms:
Facts that provide evidence of the degree of control and independence fall into three categories:
Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
I love this quiz from Intuit! It's very easy! Try it out - Intuit's short quiz can also help you determine which to file. It's fun and gets you to think about how the person is working for you.
Is your worker confused about their 1099? This IRS excerpt can help
Question - I received a Form 1099-MISC instead of a Form W-2. I'm not self-employed and don't have a business. How do I report this income?
Answer - If payment for services you provided is listed in box 7 of Form 1099-MISC, Miscellaneous Income, the payer is treating you as a self-employed worker, also referred to as an independent contractor.
You don't necessarily have to have a business for payments for your services to be reported on Form 1099-MISC. You may simply perform services as a non-employee.
The payer has determined that an employer-employee relationship doesn't exist in your case.
If you weren't an employee of the payer, where you report the income depends on whether your activity is a trade or business. You're in a self-employed trade or business if your primary purpose is to make a profit and your activity is regular and continuous.
The IRS explains where to record your 1099 income for tax purposes.
Remember to always consult your CPA for instructions specific to your situation. And you can find the IRS's Small Business and Self-Employed Tax Center for more info here.
Lynn Talbott, MBA, is the President and Founder of HRBiz. Lynn is a professional teacher and trainer, and an Advanced Certified QuickBooks ProAdvisor. She was awarded the Small Business Person of the Year in 2015 from Chattanooga's TSBDC. Read her success story on Tennessee's SBA website. You can reach HR Biz at: 423-668-6020.