1099 Filing Requirements

What transactions qualify to report on 1099-MISC?

According to the IRS, one must File Form 1099-MISC for each person to whom you have paid during the year:

• At least $10 in royalties (see the instructions for box 2) or broker payments in lieu of dividends or tax-exempt interest (see the instructions for box 8).

• At least $600 in:

1. Rents (box 1);

2. Prizes and awards (box 3);

3. Other income payments (box 3);

4. Generally, the cash paid from a notional principal contract to an individual, partnership, or estate (box 3);

5. Any fishing boat proceeds (box 5);

6. Medical and health care payments (box 6);

7. Crop insurance proceeds (box 9);

8. Payments to an attorney (box 10) (see Payments to attorneys, later);

9. Section 409A deferrals (box 12); or

10. Nonqualified deferred compensation (box 14).

You must also file Form 1099-MISC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.

What transactions qualify to report on 1099-NEC?

File Form 1099-NEC for each person to whom you have paid at least $600 during the year for:

• Services performed by someone who is not your employee (including parts and materials),

• Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish, or

• Payments to an attorney.

Who qualifies as a “person” I need to issue a 1099 to?

For 1099 reporting purposes, a person is not just an individual. A person could be an individual, a partnership, and LLC, or even an S-corp. Generally, corporations are exempt from being issued 1099s except for payments related to legal services.

Am I required to report?

Report on Form 1099 only when payments are made in the course of your trade or business. Personal payments are not reportable. You are engaged in a trade or business if you operate for gain or profit. Nonprofits, trusts of qualified pension or profit-sharing plans of employers, certain organizations exempt from tax under section 501(c) or (d), farmers' cooperatives that are exempt from tax under section 521, and widely held fixed investment trusts are also subject to these reporting requirements. Basically, you only need to file 1099s if you are operating a business. If you don’t operate a business, then you likely do not need to file.

Penalties

Employers must file and also furnish to the recipient, 1099s by January 31st of the following year. The penalty for late filing or furnishing within 30 days of the due date is $50 per return, with a maximum penalty of $565,000. Taxpayers who show intentional disregard of the filing requirements can be assessed a penalty of $560 per return, with no maximum amount of penalties. A penalty for failure to file a correct information return is separate from the penalty for failure to furnish the correct payee statement. For example, if you fail to file a correct Form 1099-MISC with the IRS and don’t provide a correct Form 1099-MISC statement to the payee, you may be subject to two separate penalties.

If you are looking for a CPA or have any questions about accounting services, please contact me, Catherine Roe, at catherine@cowartroecpa.com or 504-252-0652. I would love to work with you!