1099 Income Tax Requirements

December 19, 2018 | Jessica Hetzler

Many companies are aware of the requirement to issue Forms 1099 to subcontractors, but may not be aware of the other types of payments that are reported on Form 1099-MISC. Below are some items to keep in mind when filing.

What is a 1099?

A 1099-MISC is a series of documents used to report different types of income an individual may receive throughout a given year that is not a salary from an employer.

What type of payments should I report?

Companies should report payments for services to any individual, partnership, limited liability company or attorney. This only applies to payments made in the course of trade or business. Individuals are not required to report these types of payments.

You may need to report accounting and legal fees, cleaning or landscaping services, consulting fees, director fees, rent, prizes and commissions not reported on Form W-2. This list is not a comprehensive one, so if your company has made a payment for something other than products and materials to any of the entities listed above, it’s always a good idea to look into whether you should report that payment on Form 1099.

What is the threshold?

Only total payments of $600 or more for the year are required to be reported, although any payment is still taxable for the recipient. However, there are different thresholds for royalties, direct sales made to non-retail establishments and fishing boat proceeds, so make sure you check the instructions if your company has made those types of payments. Only include payments that have been made during the calendar year. If a vendor invoices your company for work performed in 2018, but you do not pay them until 2019, the payment should be reported in 2019.

How do I prepare the form?

In order to prepare the forms, you will need the recipient’s full name, address, and their social security number or taxpayer identification number. It’s a good practice to request that the vendor furnish that information on Form W-9 prior to remitting any payments to a new vendor. Having this information on file will make the preparation of the forms much easier in January, and you won’t have to spend time tracking down missing information. You can download a copy of Form W-9 from the IRS website.

When do I need to file by?

Forms 1099-MISC are due to the recipients by January 31 of each year, and the government copies should be mailed to the IRS by that date as well.

What if I don’t file?

The IRS imposes penalties for failure to file information returns with the IRS on a timely basis (as well as the failure to furnish returns to payees on a timely basis). In addition, the IRS may also assess penalties if a filer fails to include all of the information required to be shown on a return (e.g., taxpayer’s TIN) or reports incorrect information (e.g., incorrect dollar amount). Please note, the penalties have increased for the current tax year. Below are the penalties broken down:

  • If you correctly file within 30 days of deadline: $50 per form ($547,000 max)
  • If you correctly after 30 days and by August 1: $100 per form ($1,641,000 max)
  • If you correctly file after August 1: $270 per form ($3,282,500 max)
  • The IRS reduces max fines for each tier by $186,000, $532,000 and $1,064,000, respectively for filers that are small businesses with less than $5 million in gross receipts for the past three years.

Contact a tax professional if you have questions or need assistance in filing.