2018 – 1099 Filing Requirements
As we begin the new year, we wanted to provide you with some reminders regarding Form 1099 filing requirements. In general, the requirement is for any payment over $600 not covered by W-2 wage income to be reported through 1099 Filings.
Form 1099 Reporting Requirements:
If in the course of a year in your trade or business you paid $600 or more to “non-incorporated vendors” (individuals, partnerships, LLPs and LLCs) for subcontracted or freelance services, professional fees, or rent, then you are required to issue them a Form 1099-MISC by January 31st of the following year. There are additional filing requirements if you paid dividends, interest, or retirement benefits.
If you Made Qualifying Payments for the Following:
If, as part of your trade or business, you made any of the following types of payments:
- Payments, in the course of your trade or business, for: (1099-MISC)
- Services performed by independent contractors or other non-employees of your business
- Prizes and awards and certain other payments (see Instructions for Form 1099-MISC, Box 3. Other Income, for more information)
- Royalties of at least $10 or more
- Backup withholding or federal income tax withheld
- To physicians, physicians’ corporation, or other suppliers of health and medical services
- For a purchase of fish from anyone engaged in the trade or business of catching fish, or for payments to crewmembers of your fishing boat
- Substitute dividends or tax-exempt interest payments when you are a broker
- Crop insurance proceeds
- Gross proceeds of $600 or more paid to an attorney
- Interest on a business debt to someone, excluding interest on an obligation issued by an individual (Form 1099-INT, or Form 1098 if mortgage debt)
- Dividends or other distributions from a current or former C-Corporation to shareholder (Form 1099-DIV)
- Distribution from a retirement or profit plan or from an IRA or insurance contract to a plan beneficiary (Form 1099-R)
- Payments to merchants or other entities in settlement of reportable payment transactions, that is, any payment card or third-party network transaction (1099-K, see below)
Other Possible Reporting Situations:
If, as part of your trade or business, you were subject to any of the following situations, the following may also need to be filed:
- Form 1098: Payment of mortgage interest (including points) or reimbursements of overpaid interest from individuals.
- Form 1099-S: The sale or exchange of real estate.
- Form 1099-B: You are a broker and you sold a covered security belonging to your customer.
- Form 8937: You are an issuer of a security taking a specified corporate action that affects the cost basis of the securities held by others.
- Form 1099-A/Form 1099-C: You released someone from paying a debt secured by property or someone abandoned property that was subject to the debt (1099-A) or otherwise forgave their debt to you (1099-C)
- Form 1099-Misc: You made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment
Please contact us for additional guidance if you think any of these situations may apply to you.
Not Required to File Information Returns
You are not required to file information return(s) if any of the following situations apply:
- You are not engaged in a trade or business.
- You are engaged in a trade or business, and either:
- the payment was made to another business that is incorporated, but was not for medical or legal services, or,
- the sum of all payments made to the person or unincorporated business is less than $600 in one tax year
For more detailed information, please see the IRS documents for General Instructions for Certain Information Returns or specific form instructions.
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:
Once the data is entered, this service will do the rest. The cost is $3.49 per form and the cost declines if filings are more than 50 forms. This is a very cost effective means to file your 1099s.
As an alternative, you may wish to consider using your payroll service to file these forms at year-end. In addition, many service providers offer an arrangement where they will process payments to your vendors 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.
Note that Form W-9 is required from vendors to collect tax information such as the vendor’s correct business name, address, and Tax Identification Number. This information is needed to file Form 1099s at year-end. If you obtain the completed Form W-9 from each vendor before you issue them a payment, you will ensure that you have collected the required information for 1099 reporting. Form W-9 can be found at the following link: http://www.irs.gov/pub/irs-pdf/fw9.pdf.
As a reminder, please note Newburg & Company, LLP is not responsible for filing these forms on your behalf.
Two Questions on Business Returns Aimed to Improve Compliance:
We wanted to remind you that there are two questions that have been added to all business returns to confirm compliance which include sole proprietors (Schedule C), corporations and partnerships (including LLCs and LLPs).
For example, the corporate tax return reads:
- “Did the corporation make any payments in 2017 that would require it to file Form(s) 1099? Yes or No?”
- “If Yes, did the corporation file or will it file all required Form(s) 1099? Yes or No?”
Owners and officers of their respective businesses are signing the business’ return under penalties of perjury. It is important as the preparer of your tax returns that we remind you of these questions as they are requisite to the filing of your return.
Failure to issue a 1099 can result in a disallowance of the deduction, as well as incurring penalties for each Form 1099 not filed. Note that maximum penalties per calendar year for the penalties below depend on the size of the business, but these maximum amounts can range from $187k through more than $1m per year.
The following penalties are in effect:
- $50 penalty per information return for filing a 1099 up to 30 days late
- $100 penalty per information return for filing a 1099 more than 30 days late and by August 1st,
- $260 penalty per information return for filing a 1099 after August 1st
- $530 penalty per information return for intentional failure to file, with no maximum penalty.
Please do not hesitate to contact us should you have any questions regarding your 1099 filing requirements.
Sellers receiving Form 1099-K:
The Form 1099-K is issued to report payments to merchants or other entities in settlement of reportable payment transactions, that is, any payment card or third party network transactions.
Since 2012, payment settlement entities (PSEs) and third party settlement organizations (TPSOs) such as PayPal, Amazon, eBay, AirBnb, Uber, etc. have been required to issue 1099-Ks to all owners of accounts that reach the following thresholds:
- $20,000 USD in gross payment volume from sales of goods or services in a single calendar year
- 200 payments for goods or services in the same year
However, since 2017, Massachusetts has now mandated that TPSOs report the gross amount paid in settlement to a payee with a Massachusetts address when the gross amount paid in settlement in a calendar year is $600 or greater (regardless of the number of transactions). If no Federal form is required, the issuing organization may only file a MA 1099-K.
As a result, many MA residents are now receiving these forms that indicate their name, address and the income received each month through PayPal. You should retain these 1099K forms and forward them with your tax documents. A TPSO may not know whether a payment made in settlement is subject to tax, either because it lacks information regarding the Massachusetts tax type applicable to the payee, or because it lacks information as to the nature of the payment.
If you are participating in a for-profit activity, these payments should be integrated with your business income reporting (e.g. Schedule C) along with any offsetting expenses. If the payments were for personal use, or a not-for-profit activity, these payments may still be reported on your return to avoid IRS or state agency tax notices. Please be aware that the Form 1099-K and the Form 1099-Misc can be required for the same transactions, potentially confusing recipients. We will review the activity and the reporting and verify how to treat this income.
Processing companies such as PayPal may begin requesting you to enter your EIN or social security number in order to properly file these forms. If you find a discrepancy on your 1099K form, PayPal does have a helpful link to help resolve – https://www.paypal.com/us/selfhelp/article/common-us-irs-tax-questions-1099k,-b-notice,-and-fatca-faq3405
Please feel free to contact us with any questions.