1099 forms are informational returns used to report various types of income to the IRS. The most common 1099 form is 1099-MISC and its counterpart 1099-NEC.
Issuing 1099 forms is not optional. Although there are several types of 1099 tax forms, most self-employed will often only need to deal with a few of them, like the form 1099-NEC and form 1099-MISC.
1099-NEC
The 1099-NEC is the most common 1099 form that most freelancers and self-employed professionals will get to report their vendor compensation.
Clients and businesses that pay over $600 to an employee not part of their organization have to send them a Form 1099-NEC by January 31.
1099-MISC
Before 2020, the 1099-MISC reported all non-employee compensation, but it has since been replaced by the 1099-NEC. However, the form is still used to report all miscellaneous service payments that are not nonemployee compensation. The form will report payments like rents, prizes and awards.
Clients have to send the forms to recipients by January 31st or February 15th if the forms also include data in boxes 8 or 10.
The IRS defines the criteria as follows:
"File Form 1099-MISC for each person to whom you have paid during the year:
- At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
- At least $600 in:
- Rents.
- Prizes and awards.
- Other income payments.
- Medical and health care payments.
- Crop insurance proceeds.
- Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
- Generally, the cash paid from a notional principal contract to an individual, partnership, or estate.
- Payments to an attorney.
Any fishing boat proceeds.
In addition, use Form 1099-MISC to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment."
(Source)
FAQ about 1099:
- When are 1099s due?
For most 1099s, the deadline to send the form is by January 31st. - Do you need to issue 1099 for rental income? Dues to organizations?
1099s are required if you receive payments for rent facilitated through another vendor but are income to you (e.g. subleasing through an agency or your business is a property manager). This is very uncommon for Formations customers. There are occasions if you have a rental property that 1099 may be required, but that is a conversation with your personal tax preparer to determine if it is required. Dues to organizations do not need 1099s because it is not for a service, instead, it is for a good, product, or membership. - Do S-Corporations need to file a 1099 for international vendors?
International vendors are very specific. They do not need a 1099 but instead may require a 1042-S instead. This is dependent on international tax treaties and taxation laws. If you have this situation, please reach out to us to help you understand your obligations as they vary wildly. - Does the customer’s payment to Formations count for 1099?
They do count as 1099s because we are not a C-Corp or S-Corp. We handle all our 1099s for Formations payments as we have all the info needed to process in our system. No action is required on this part. - For the home office, do we still need to process 1099s for portions of the house rent?
You do not need to file 1099s for business use of home. This is a business accountable plan item that is reimbursed through your business and distributions to you. - Is an S-Corp required to provide a 1099 to advertising service providers?
It would depend on how the payments were made and to what type of organization. In general, it is not for services rendered, so it would not apply. There may be times where you engage with someone to manage all things related to your advertising and pay them a fee. If this is the case, you would need to give them 1099. But generally, this is a product you are purchasing so it is not required. - Do we need to issue 1099 to vendors we paid through PayPal?
PayPal is a special exception. PayPal has special requirements from the IRS that they must report transactions, so there is not a 1099 requirement for payments made this way. However, other cash transaction applications (CashApp, Venmo, Zelle, FaceBook Money, Bitcoin) do not have this requirement and you are still required to file 1099s if you paid for service of over $600 in a calendar year. - What can we do for the 1099 vendors who are not responsive with their W-9s? Are we able to file the 1099 without them?
Yes, if a vendor fails to provide their W-9, you may file the 1099 as long as you have made a reasonable effort to capture their W-9. We ask that you send at least three requests for their W-9 and keep a record of your requests. - Do we need to file 1099s to corporations?
No, if they are an S-corp or C-corp, there is no need. If you aren't sure if they are, you should request the W-9 and it will say on the form what type of business they are. You only need to provide 1099s for people you paid with cash or check (Venmo counts as cash). - Do I need to issue a 1099 to a vendor I paid by credit card?
No, when you pay by credit card, you do not need to issue a 1099. - If we received a W-9 from vendors last year, do they need to complete a new one each year?
If their information has not changed, you do not need to complete a new W-9. However, we do advise you check with the vendor each year to verify that the information you have on file is up-to-date.
Need 1099s?
Good news - Formations will file 1099s for you. We just need you to do a few things so we can take them off your plate.
Here's what you should do:
- Review your business expenses and determine if you have paid any vendors/contractors over $600 in the previous calendar year by cash, check, or cash transfer platforms.
- Send us a list of vendors with the amounts you paid through today so we can get started early. An update will be required for any additional payments made before the end of the year.
- Download Form W-9 here and send it to each vendor. Stress the importance you receive this document ASAP.
- Upload each W-9 to the Formations App.