We are often asked about a variety of tax-related forms that business owners must send out each year, but one form stands above the others with respect to the confusion it can create: Form 1099-MISC. We would like to shed a little light on who is required to issue this form, and to whom.
Form 1099-MISC is one of many forms defined by the IRS as an “information return.” Other information returns with which you may be familiar include 1099-DIV (dividend income), 1099-INT (interest income), and 1099-S (proceeds from sale of real estate).
Filing requirements for 1099-MISC originate in IRC Sec. 6041. In summary, business owners (including partnerships, sole proprietorships, and even churches and non-profits) are required to issue a 1099-MISC to, among others, any individual or unincorporated business to which it pays $600 or more per year for services, rents, royalty payments, prizes & awards, other income payments, or fees or gross proceeds paid to an attorney.
1099’s are not required to be issued for payments made for personal expenses – only business-related expenses require consideration. In addition, payments made to employees are not reportable via 1099; such payments would instead be reported via W-2. Business owners should take care when differentiating their “employees” who should receive W-2’s for wages, from “independent contractors” who should receive 1099-MISC for services provided. To help aid business owners with this important distinction, we will separately be posting information on this topic in the future.
It should also be noted that business owners are not generally required to issue a 1099-MISC for payments made to C-Corporations and S-Corporations, although such corporations must issue them for payments made to individuals and unincorporated businesses. Business owners are also not generally required to issue 1099’s to non-profit organizations. However, as with many tax-related matters, there are several exceptions to these general rules.
Business owners who fail to issue 1099’s as required may face penalties of up to $100 per form, up to $1.5 million for the year (cap limited to $500,000 for small businesses).
If you are a business owner and are unsure whether you should be issuing 1099-MISC to your vendors, independent contractors, and others, or if you are unclear as to whether someone performing services for you should be considered an employee or independent contractor, we are here to help. Please contact us today for a review of your situation!