As the year-end approaches, we wanted to provide you with some reminders regarding Form 1099 filing requirements along with some important 2024 changes.
Form 1099 Reporting Requirements (Information Returns)
There are a number of different 1099 forms that report various types of payments. Below is a list of the 1099 reporting requirements by form.
Form 1099-NEC: Nonemployee Compensation
Form 1099-NEC is used to report payments of $600 or more to nonemployees for services in the course of business during the year.
- Non-employee compensation (Box 1) – Examples of nonemployees include self-employed independent contractors such as freelancers, real estate agents completing real estate transactions, rideshare drivers, food delivery person, etc.
- Payments to attorneys (Box 1) – The term “attorney” includes a law firm or other provider of legal services. Attorney fees of $600 or more paid in the course of your trade or business are reportable in box 1 of Form 1099-NEC, under section 6041A(a)(1).
- Payments to corporations for legal services – The exemption from reporting payments made to corporations does not apply to payments for legal services. Therefore, you must report attorneys’ fees (in box 1of Form 1099-NEC) or gross proceeds (in box 10 of Form 1099-MISC).
- Direct sales of $5,000 or more of consumer products to a buyer for resale anywhere other than a permanent retail establishment (Box 2) –*Note this can also be filed in form 1099-MISC under box 7
Filing Due Date: Form 1099-NEC is due to BOTH the recipient and IRS on or before January 31, 2025.
Form 1099-MISC: Miscellaneous Information
Form 1099-MISC is used to report miscellaneous payments of $600 or more made in the course of business during the year. Business taxpayers use this form to report any miscellaneous payments made, such as rent, royalties, medical and health care payments, cash payments, and more.
- Rent paid ($600 or more) (Box 1)
- Royalties paid of at least $10 or more (Box 2)
- Prizes and awards and certain other payments ($600 or more, see instructions for Form 1099-MISC, Box 3 for more information)
- Backup withholding or federal income tax withheld (any amount) (Box 4)
- Any fishing boat proceeds (Box 5)
- Direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment (Box 7) –*Note this can also be filed in form 1099-NEC under box 2
Reportable Payments Made to Corporations
- Amounts paid specifically to physicians, physicians’ corporations, or other suppliers of health and medical services ($600 or more) (Box 6)
- Substitute dividends or tax-exempt interest payments when you are a broker (Box 8)
- Includes any reporting under section 6050R, regarding cash payments for the purchase of fish for resale purposes, from an individual or corporation who is engaged in catching fish (Box 11)
- Gross proceeds paid to an attorney ($600 or more whether or not incorporated) (Box 10)
- Are made to an attorney in the course of your trade or business in connection with legal services, but not for the attorney’s services, for example, as in a settlement agreement
Filing Due Date: Form 1099-MISC is due to the recipient by January 31, 2025, and to the IRS by February 28, 2025 (if file on paper) or by March 31, 2025 (if file electronically).
Form 1099-K – New for 2024, TPSOs (Third-Party Settlement Organizations) are required to report transactions for goods or services when the total payments are more than $5,000 during calendar year 2024. The IRS delayed the effective date of the $600 reporting threshold for TPSOs to 2026 calendar year.
-
- This means that for 2024, you shall receive Form 1099-K if you receive payments totaling $5,000 or more from payment app platforms (i.e. Venmo, PayPal, Square, etc.) with no transaction minimum.
- For clarification: Payments from friends and family should generally not be reported on a Form 1099-K. Form 1099-K reports payments for goods or services and should not report personal payments like dinner, travel, rent, and gifts, regardless of the amount. Generally, in payment apps, the default is “personal payments” unless the sender designates and codes that the transaction is for purchasing goods or services.
- For 2025 and 2026, TPSOs are required to report transactions for goods or services when the total payments are more than $2,500 during calendar year 2025; and more than $600 during calendar year 2026 and thereafter, regardless of the number of such transactions.
- For calendar year 2024, in accordance with Notice 2024-85, the IRS will not assert penalties under section 6651 or 6656 for a TPSO’s failure to withhold and pay backup withholding tax during the calendar year. TPSOs that have performed backup withholding for a payee during calendar year 2024 must file a Form 945 and a Form 1099-K with the IRS and furnish a copy to the payee.
The IRS has provided various helpful resources at https://www.irs.gov/1099-k and https://www.irs.gov/1099-k-faqs
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 1099-DIV – Dividends or other distributions from a current or former C-Corporation to a shareholder
- Form 1099-INT – Interest on a business debt to someone, excluding interest on an obligation issued by an individual
- Form 1099-R – Distribution from a retirement plan, profit sharing plan, IRA, or insurance contract to a plan beneficiary
- Form 1098 – Payment of mortgage interest, including points, or reimbursements of overpaid interest from individuals
- 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-B – You are a broker and you sold a covered security belonging to your customer
- Form 1099-S – The sale or exchange of real estate
- 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
State Filing Requirements – Combined Federal/State Filing Program
The Combined Federal/State Filing Program (CF/SF) simplifies 1099 information returns. Through this program, the IRS electronically forwards information returns to participating states. In many cases, there may be nothing else you need to do, but the CF/SF program may not completely meet the requirements of the state. Please verify the requirements directly with the Department of Revenue for the state in question.
States that participate in CF/SF program but also requires direct state filing:
Delaware, the District of Columbia, Georgia, Indiana, Maine, Maryland, Massachusetts, Montana, Oklahoma (Form 1099-NEC Only), Pennsylvania, Wisconsin, Alabama, Arizona, Arkansas, Colorado, Connecticut, Idaho, Kansas, Michigan, Minnesota, Mississippi, Nebraska, New Jersey, New Mexico, North Carolina, North Dakota, and Ohio.
States that do not participate in CF/SF program and requires direct state filing:
Iowa, Kentucky, Oregon, Rhode Island, Utah, Vermont, Virginia, and West Virginia
States with no 1099 filing requirement:
Alaska, Nevada, New Hampshire, South Dakota, Texas, Washington, and Wyoming
State that does not generally require 1099 filing but requires Form 1099-K filing if it is required federally:
Florida, Illinois, New York, and Tennessee
Cost-Effective Online Filing Options
We recommend the following options in filing your 1099s:
IRS-Authorized E-Filing Platform – Tax1099
This IRS approved provider electronically transmit the 1099 filings to the appropriate tax reporting agency and mails the recipient copy on your behalf. Once the data is entered, this service will electronically transmit the filing(s) to the appropriate tax reporting agency as well as mail the recipient copy on your behalf. This is a cost-effective means of filing your 1099s ($2.90 each form)
Tax1099 – https://www.tax1099.com
(*Integrate with QuickBooks, Xero, Bill.com, and more)
QuickBooks Online (QBO)
QuickBooks Online can help you prepare and file your 1099s seamlessly, using the information from your QBO account. Once the 1099s are filed with the IRS, you can choose to have the 1099s emailed or mailed a printed copy to your contractors (Fees may apply). By default, QBO will electronically deliver 1099 forms to recipients for whom emails are in QBO when you e-file your 1099s. Alternatively, you can choose to download, print, and mail the forms to your contractors, or have QuickBooks print and mail for $4 per form. For more information, please click on the link below.
Payroll Service Provider
As an alternative, you could consider using your payroll service to file forms 1099s at year end. In addition, many service providers offer an arrangement where they will process payments to your vendors that require 1099s. The payroll service can issue these payments via check or direct deposit to the vendor and can accommodate the filing requirements to the appropriate tax authorities.
Form W-9 Requirements
Note that Form W-9 is required from vendors to collect tax information such as the vendor’s business name, address, and Tax Identification Number. This information is needed to file 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: Form W-9
Increased Penalties and Exposure
If your business fails to issue a Form 1099-NEC or Form 1099-MISC by the deadline, the penalty varies as follows:
- penalty from $60 to $330 per form 1099 (tax year 2024), depending on the timeframe past the filing deadline
- minimum penalty of $660 per form 1099 or 10% of the income reported on the form, with no maximum, if your business intentionally disregards the requirement to provide a correct Form 1099-NEC or Form 1099-MISC
Visit the IRS website for detailed instructions for 1099 filings Instructions for Forms 1099 (01/2024)
As a reminder, please note Newburg | CPA is not responsible for filing these forms on your behalf.
Please feel free to contact us directly with any questions.