Do I Need to Send 1099s?

If you have employees, you probably know that you need to file W-2s with the IRS for them. But, do you know if you also need to file 1099 forms?

First things first…

Independent contractors and freelancers will have their income reported on a 1099-NEC, NOT the traditional 1099-MISC. The MISC form is exactly that – it reports several different types of income. So, for 2020, the IRS pulled out an old form to move Non-Employee Compensation to.

Who gets a 1099-NEC?

Form 1099-NEC, Nonemployee Compensation, is a form that solely reports nonemployee compensation. Form 1099-NEC is not a replacement for Form 1099-MISC. Form 1099-NEC is only replacing the use of Form 1099-MISC for reporting independent contractor payments. Business owners must issue a Form 1099-NEC to each person to whom they paid at least $600 in business services (including parts and materials, but not merchandise). Other payments that previously were reported on the 1099-MISC will still be reported on that form, including rent payments. You will send the 1099-NEC form directly to the contractors with a summary report going to the IRS. You only need to send a 1099 to sole proprietors, not to corporations (unless it’s attorney fees).

Electronic Payment Exception

If you pay contractors electronically (i.e. Paypal) or with a credit card, you do NOT include those amounts on your 1099. If all payments were electronic, then you do not need to issue a 1099 at all. The 3rd party handling the payments will provide a 1099-K if the payments reach a certain threshold. This exception does NOT apply to payments made via Cash App, Zelle, or Venmo. Those organizations do not tie payments to social security numbers and do not issue 1099-K forms. You will need to file 1099s for those payments if you paid the contractor more than $600 in the year.

When do I file a 1099?

The deadline for filing is January 31st. The penalties for not filing or for filing late are steep, so don’t forget! When you file your business tax return or Schedule C, you will be asked if you filed required 1099s.

How can I get help with filing 1099?

Debbie Evans, Enrolled Agent, is available to prepare and file 1099 forms on your behalf. You will need the contractor’s name, social security number, address, and the total amount paid in the previous tax year. You should have their contact information from their W-9 form. Yes, you should have all of your contractors fill out a W-9 form! DO NOT pay any contractor until they’ve given you a W9!

The Fine Print

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. IRS Circular 230 Notice: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in the entries in this blog (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.