1099-MISC, 1099-NEC, & YOU
Everyone loves taxes, right? Right? Is this thing on? Hello……. Okay nobody enjoys taxes, but they are a necessary part of running a business. As we get towards the end of the year all companies must be prepared to file end of year taxes. 1099’s are one of the biggest year end tax forms a company has to deal with, and they have changed in recent years. Here’s what you need to be aware of.
What is a 1099?
A 1099 is a form you file with the IRS stating that you paid an entity or person money. 1099’s are an annual form you send to your vendors to report how much you paid them during the year. Your forms 1099 are due to the IRS on or before January 31st of each year.
Who does and doesn’t get a 1099?
The following makes up the criteria for who should get a 1099:
Paid $600 or more during the year
Individuals/Contractors who provided a service (not goods/materials)
Businesses who file as an LLC or Partnership (reported on W9)
Payments to attorneys or law firms
The following makes up the criteria for who do NOT get a 1099:
Paid less than $600 during the year
Corporations - S Corp/C Corps (reported on W9)
Wages to W2 Employees
Payments to Tax Exempt organizations
Payments made via credit card, PayPal, Zelle, Venmo, etc.
What changes have been made in recent years?
In recent years the IRS has decided to split 1099’s into two separate reporting forms.
1099-NEC stands for Non-Employee Compensation and used for the following payment types:
1099-MISC stands for Miscellaneous and used for the following payment types:
At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest
At least $600 in
Medical & Health Care (Doctors or service providers)
What do you do with this information?
You will want to review the expenses from your bank accounts for the year. Check each vendor to determine if you paid them $600 or more during the year from a bank account. If you paid them more than $600 and they are providing a service, they may need a 1099 and you need to contact them to get a copy of their Form W9. This W9 will give you their company/individual name, business entity type, address, and SSN or EIN. If they meet the criteria detailed above, then you need to issue them a 1099. You will need to purchase official 1099 forms, complete the form, send each copy to the necessary parties (yes, there are multiple! One for the IRS, one for the vendor, and potentially one for the state if they require it).
It's always a good idea to consult with your CPA. They may have specific instruction for you, and they can answer any specific tax-related questions.