For Businesses & Corporations

As a business owner, you may be hiring independent contractors for your business. If you have paid any amount greater than $600 during the calendar year, you may be required to file a FORM 1099-MISC with IRS. A copy is sent to the contractor and a copy is sent to the IRS.

There are various variations of the 1099 form. However, for most businesses the following are the most frequently used :

• 1099 MISC– for independent contractors
• 1099 DIV– for dividends paid out to shareholders. Applies to all stock dividends that you may have earned from your investments. Also, you need to send this form if you were paid dividends through your corporation.
• 1099 INT– for interest income

For this article, our main focus would be on 1099-MISC which is the most frequently used form for businesses.

Let’s go through few frequently asked questions about 1099-MISC.

1. Who needs to be issued 1099-MISC. If you have paid at least $600 during the year including multiple smaller payments that add up to $600, you are required to issue 1099-MISC. You need to issue 1099-MISC for the following types of services.
   • At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest;
   • At least $600 in:
   • Rents;
   • Services performed by someone who is not your employee;
   • Prizes and awards;
   • Other income payments;
   • Medical and healthcare 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; or
   • Any fishing boat proceeds,

In addition, use this form 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

2.When is the deadline to issue 1099-MISC – This is due by January 31^st, of the following year. E.g.: for all 2017 transactions, it is due by January 31^st, 2018. Report all payments to contractors as ‘Non-employee compensation’.

3. Do I need to issue 1099s if I made payment to corporations: No, you are not required to issue 1099s to Corporations? However, you may be required to send 1099s to LLCs.

4. I made electronic payments via Paypal and credit cards to independent contractors, do I need to issue 1099s? You are required to file 1099-K. 1099-K are usually due by the last day of February. If filed electronically, they are due by April of the following year. For more information, check out this link on the IRS website: https://www.irs.gov/payments/general-faqs-on-new-payment-card-reporting-requirements

5.What if we find errors in 1099 form or if a vendor disputes the amount on the form: This is a fairly common issue. We recommend the following :

• Verify the total transaction value before sending out to your vendor.
• If there are still errors after submitting the form, you can void the original and submit the 1099-C (corrected) form.

6. Do we need to issue 1099s to S or C corporations including LLCs who have elected C or S status with IRS?

No, you are not required to issue 1099s if they have provided you with a form W9 indicating their S or C Corporation status.

7. How do I know the type of corporation of the vendor whether they are required to receive 1099s?

At the beginning of the contract or when prior to the commencement of the work order, it is best to ask your vendor to complete a form W9 that provides basic information about your vendor. This can then be used the end of the year to issue W9s.

8. Our vendor is outside of United States, are we required to issue 1099s?

No, you are not required to issue W9s. There is a separate form W8 and a different set of compliance rules for out of vendors. Contact a tax professional who can further assist you with this query.

9. I am an Information technology professional who owns a consulting business. I worked multiple projects as an S Corporation, do I need to request 1099s from my clients?

As you are S Corporation, you are not required to receive 1099s from your clients. Ensure you correctly report your revenue received on your tax returns. For additional queries, consult your Certified Public Accountant.

10. We are Technology company, we work with many contractors – both business to business (B2B), independent contractors (individuals). Should we issue 1099s to all?

Refer to our point # 1. If your B2B client is an S or C Corporation, you are not required to issue 1099s. Issue 1099s only if they are sole proprietors or partnerships. Also, if they are independent contractors, issue 1099s.

11. How can we file 1099s?

You can file 1099s, electronically or through manual submission. We highly recommend electronic submission for fast and accurate delivery. Please contact us if you require any further help via our web form.

 

For Independent contractors

1. Verify the payments received from your customers.
2. Ensure the EIN ( LLCs)  or SSN ( sole proprietors) are accurate including the amount mentioned under non-employee compensation.
3. Any discrepancies, ensure you communicate timely with your customers so a correct 1099 can be issued.
4. If you are an S or C Corporation, you are not required to receive form 1099.

 

 

 

Publications and sources

IRS.gov website

https://www.irs.gov/forms-pubs/about-form-1099-misc-miscellaneous-income