The IRS continues to increase its examination of Form 1099 reporting (filing).  The IRS uses 1099s submitted to be sure recipients report the income on their income tax returns.  Failure to comply with 1099 filing requirements may result in substantial penalties; penalties are more than double what they have been in prior years.  Henry & Peters is available to support you in complying with these requirements.

Please review the following and feel free to contact us with any questions or clarification needed.

  • Recommendations for all Companies/Entities:
    • Collect W-9’s for all new vendors, contractors and other payment recipients prior to first payment.
    • Update your information if an existing payment recipient sends you an updated W-9.  You should receive an updated W-9 if the payment recipient changes its address or business organization.
    • Ensure that the Social Security # or Taxpayer Identification Number (TIN) that is being used matches the name of the Vendor on the 1099.
    • Ensure 1099’s are issued to the IRS, service providers and vendors by January 31st.
  • Definitions
    • W-9 Request for Taxpayer Identification Number and Certification:  This form is filled out by the vendor and submitted to you, the company planning to pay individuals and entities during the tax year. 
    • 1099:  Used to report the year-end summary of all non-employee compensation over $600 and issued/submitted to the IRS, service providers and vendors January 31st.
    • Payor:  The business/entity paying for the services (you).
  • Who must file Form 1099-NEC and Form 1099-MISC?
    • All entities engaged in a trade or business (sole proprietorships, partnerships, and corporations)
    • Landlords engaging in the business of renting property
    • Nonprofit organizations, federal, state, and local governmental agencies
    • Trustee of qualified pension or profit-sharing plans of employers
  • When is Form 1099-NEC required?
    • For each person, vendor, subcontractor, independent contractor and other in the following circumstances:
      • $600 or more per year is paid for services, not covered by another information reporting document.
      • Reporting payments is required if the recipient is not a corporation.
        • Exceptions:
          • Payments to corporation for legal services – The exemption from reporting payments made to corporations does not apply to payments for legal services.  You must report attorneys’ fees on 1099-NEC.
      • Oil & Gas – Working Interest Owners are responsible for reporting payments to Well Operators using a 1099 even when Operators may be contracting out the services on the well.
  • When is Form 1099-MISC required?
    • For each person, vendor, subcontractor, independent contractor and other in the following circumstances:
      • $600 or more per year is paid for rents, prizes and awards, medical and health care payments, crop insurance proceeds, cash payments to fishermen, proceeds paid to attorneys and other types of payments not covered by another information reporting document.
      • Reporting payments is required if the recipient is not a corporation.
        • Exceptions:
          • Payments to corporation for legal services – The exemption from reporting payments made to corporations does not apply to payments for legal services.  You must report gross proceeds (in box 14).
          • Medical and health care payments are reported on Form 1099-MISC even if made to corporations. (in box 6)
  • IRS Requirements/Penalties
    • Income Taxes – While reporting requirements have previously been in place, starting in 2011, the IRS added the two questions below on individual and business tax returns to identify taxpayers that should be filing 1099s but are not:
      • “Did you make any payments that would require you to file Form(s) 1099?”
      • “If ‘Yes,’ did you or will you file all required Forms 1099?”
  • Backup Withholding Requirement – Backup Withholding is required on payments if the TIN or Social Security number is not furnished by the payee.  If you are required to withhold but fail to do so, you may be liable for the amount you should have withheld, unless the payee included the payment on a tax return. Current withholding amount is 28% of the pay.
    • 1099 Penalties – see separate attachment about penalties.
      • Penalties are different for small and large businesses ranging from $50 to $560 per 1099. 
      • Maximums may apply, however, there is no maximum penalty for intentional disregard. 
      • The link below provides details regarding penalties: https://www.irs.gov/payments/information-return-penalties