Newburg Staff Writers-December 28, 2020 (3:00PM)
As we lead into the new year, we wanted to provide you with some new changes and reminders regarding Form 1099 filing requirements.
Form 1099 Reporting Requirements:
New this year for 2020
Form 1099-NEC – Payments of $600 or more made in the course of your business for the following:
- During 2020 if your business paid $600 or more (cumulatively) to a “non-incorporated vendor” for services, freelance/subcontract services, professional fees, or rent, then you are required to issue them a 1099 by January 31st of 2021. A “non-incorporated vendors” entails individuals, partnerships, LLPs/LLCs (taxed as partnerships or disregarded entities).
- Services performed by someone who is not your employee (including parts and materials if they were incidental to the service).
- Commissions paid to nonemployee sales people not repaid during the year.
- Fees paid by one professional to another (e.g.- fee splitting, etc.).
- Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
- Payments to an attorney***
- The term “attorney” includes a law firm or other provider of legal services. Attorneys’ 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).
Form 1099-MISC – this form continues to capture all other payments made other than nonemployee compensation that is captured on the new Form 1099-NEC. Form 1099-MISC is due by March 1, 2021, if you file on paper, or March 31, 2021, if you file electronically.
- Form 1099 MISC covers the following items:
- 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)
- Amounts paid specifically to physicians, physicians’ corporations, or other suppliers of health and medical services ($600 or more) (Box 6)
- Direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment (Box 7)
- Substitute dividends or tax-exempt interest payments when you are a broker (Box 8)
- Crop insurance proceeds ($600 or more) (Box 9)
- 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
- Section 409A deferrals (Box 12)
- Excess golden parachute payments (Box 13)
- Nonqualified deferred compensation income (Box 14)
***With respect to payments to attorneys or law firms, only the portion of the payment that is for the attorneys’ fees is reported on Form 1099-NEC; gross proceeds paid to attorneys continue to be reportable on Line 10 of the Form 1099-MISC (regardless of the fact that these fees are potentially reported twice).
- 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-K – Payments to merchants or other entities in settlement of reportable payment transactions, i.e. any payment card or third-party network transaction
- Form 1099-R – Distribution from a retirement plan, profit sharing plan, IRA, or insurance contract to a plan beneficiary
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-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
New 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; Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Indiana, Kansas, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, Wisconsin.
States with no 1099-MISC filing requirement:
Alaska, Florida, Illinois, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington, Wyoming
Note: Form 1099-NEC, Nonemployee Compensation is not part of the Combined Federal/State Filing (CF/SF) Program.
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
- The sum of all payments made to the person or unincorporated business is less than $600 in one tax year
Cost-Effective Online Filing Options
If you need help filing your 1099s, we recommend the following:
- QuickBooks Online (QBO) – offers an e-file service with fees starting at $14.99 for up to 3 forms and $3.99 for each additional form thereafter. If you are using QBO, it more efficient to utilize QBO for 1099 reporting as well. This would save time as your vendor information is transferred over without having to enter the data.
For more information, please click on the link below:
These providers electronically transmit the 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.
- Tax1099 – https://www.tax1099.com
(*Import with QuickBooks, Xero, Bill.com, and more)
- eFileMyForms – https://www.efilemyforms.com
- 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 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.
As a reminder, please note Newburg | CPA is not responsible for filing these forms on your behalf.
Form W-9 Requirements
Form W-9 – 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: https://www.irs.gov/pub/irs-pdf/fw9.pdf.
Increased Penalties and Exposure
Failure to issue a 1099 can result in a disallowance of the deduction, as well as incurring a penalty for each 1099 not filed. Please 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 $195k to 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
- $110 penalty per information return for filing a 1099 more than 30 days late and by August 1st
- $270 penalty per information return for filing a 1099 after August 1st
- $550 penalty per information return for intentional failure to file, with no maximum penalty
In addition, if you have a corporation, partnership, or sole proprietorship, there are questions that are required to be completed relative to your 1099 responsibilities. Owners and officers of their respective businesses are signing the business’s return under penalties of perjury.
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, i.e. 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 in a single calendar year:
- Gross payment volume from sales of goods or services exceeding $20,000
- Greater than or equal to 200 individual transactions involving payment for goods or services
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 Massachusetts 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 business’s EIN or your social security number in order to properly file these forms. If you do find a discrepancy on your 1099K, PayPal does offer a service to help resolve any issues at the following address:
Please contact us should you have any questions.