We would like to make you aware of the year-end filing requirements relative to issuing Form 1099.
Form 1099 Reporting Requirements
In the course of your trade or business if you paid $600 or more for services to non-incorporated vendors (individuals, partnerships, LLPs and LLCs) for subcontracted or freelance services, professional fees and/or rent, you are required to issue them a Form 1099 by January 31st (February 15th if you are reporting payments in boxes 8 or 14). These forms need to be filed with the Internal Revenue Service and with state authorities by February 28th. There are additional filing requirements if you paid dividends, interest and /or retirement benefits.
Effective April 18, 2011 – Repeal of Expanded Information Reporting Requirements
The Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 eliminated new information reporting requirements that were created by previous legislation.
The Patient Protection and Affordable Care Act of 2010 expanded information reporting to include payments to corporations, “amounts in consideration of property,” and “other gross proceeds” made in the course of a trade or business (including operation of a governmental entity), beginning in 2012. The new law repeals these requirements. You are not required to file Form 1099-MISC for these payments for any year.
Existing information reporting requirements remain in effect. Payments of $600 or more for nonemployee compensation made in the course of a trade or business are generally required to be reported on Form 1099-MISC. Certain payments to corporations are required to be reported. See the Instructions for Form 1099-MISC for more information.
The Small Business Jobs Act of 2010 provided that anyone receiving rental income from real estate would be treated as receiving income from a trade or business of renting property; therefore, information return requirements applicable to small businesses would be in effect. This provision also is repealed; you are not considered to be in a trade or business solely because you receive rental income. See Publication 527 for more information on rental income and expenses.
Failure to issue a 1099 can result in a disallowance of the deduction as well as incurring penalties for each Form 1099 not filed. Please note that penalties have increased significantly from last year.
The following penalties will be in effect for the year 2011:
- $30 penalty for filing a 1099 not more than 30 days late (previously $15) with the calendar year maximum increased to $250,000 or $75,000 for small business filers;
- $60 penalty for filing a 1099 more than 30 days late and before August 1st (previously $30) with the calendar year maximum increased to $500,000 or $200,000 for small business filers;
- $100 penalty for filing a 1099 on or after August 1st (previously $50) with the calendar year maximum increased to $1,500,000 or $500,000 for small business filers;
- $250 penalty for international failure to file (previously $250).
The Small Business Jobs Act also similarly increased the penalties for failure to provide correct payee statements in addition to the information reporting penalties (IRC § 6722).
The increased penalty amounts were effective Jan. 1, 2011, and remain in effect after the repeal of the expanded 1099 reporting requirements.
You can give IRS Form W-9 to your service providers to complete so that you have the proper name, address and tax identification number available for the preparation of these required forms.
We would like to direct you to an IRS-approved website that can electronically transmit the filings to the appropriate tax reporting agency and mail the recipient copy on your behalf: http://www.efilemyforms.com/.
Once the data is entered, this service will do the rest. The cost is $3.49 per form and the per form amount declines if filings are more than 50 forms.
As an alternative, you may wish to consider using your payroll service file these forms and/or to make payments to your service providers that require a 1099 form. The payroll service can issue these payments via check or direct deposit to the vendor and can accommodate the filing requirements to the respective tax authorities.
If you give the Form W-9 to your service providers before you issue them a payment, you will have the needed information for 1099 reporting at year end. Form W-9 can be found at the following link: http://www.irs.gov/pub/irs-pdf/fw9.pdf.
If you have any questions, please feel free to call your Newburg & Company tax professional or Diana Peabody, our dedicated client bookkeeper at 781-884-4128.