Newburg | CPA Tax Brief (12/29/2021)
As the year-end approaches, we wanted to provide you with some reminders regarding Form 1099 filing requirements for 2021.
Form 1099 Reporting Requirements
It is important to prepare and issue 1099s to the recipients, and file them to the IRS by the deadline.
If, during the year, your business paid $600 or more to “non-incorporated vendors”, i.e., individuals, partnerships, LLPs, and LLCs, for subcontracted services, freelance services, professional fees, or rent, then you are required to issue them a 1099 by January 31st of the following year. Form 1099-MISC must be filed by February 28th if filed by paper or March 31st if filed electronically.
Below we have further detailed the 1099 reporting requirements by form.
- Form 1099-NEC – Payments made in the course of your business to whom you have paid at least $600 during the year for the following:
- Services performed by someone who is not your employee – including parts and materials (Box 1)
- Payments to an attorney – applicable to corporations (Box 1)
- 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).
- Direct sales of at least $5,000 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
- Backup withholding or federal income tax withheld (any amount) (Box 4)
- Form 1099-MISC – Payments incurred while conducting your trade or business for the following:
- 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
- Crop insurance proceeds ($600 or more) (Box 9)
- Section 409A deferrals (Box 12)
- Excess golden parachute payments (Box 13)
- Nonqualified deferred compensation income (Box 14)
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)
- Cash payments for the purchase of fish for resale (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
- 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 (see below for additional info and Threshold Change for 2022)
- 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
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 filing requirement:
Alaska, Florida, Illinois, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington, Wyoming
Note: Form 1099-NEC, Nonemployee Compensation is now part of the Combined Federal/State Filing (CF/SF) Program for tax year 2021.
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
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.
- IRS-approved websites:
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)
- 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 1099-K and Threshold Change for 2022
Form 1099-K is an IRS informational tax form used to report payments received by a business or individual for the sale of goods and services that were paid via a third-party network, often referred to as a Payment Settlement Entity (PSE) or third-party settlement organizations (TPSO) or credit/debit card transaction. The IRS requires TPSOs, such as PayPal, Venmo, Amazon, eBay, AirBnb, Uber, etc., to issue a Form 1099-K, which shows the total amount of payments received from a TPSO in the calendar year. Taxpayers should consider this amount with their tax advisor when calculating gross receipts for their income tax return.
- Current requirement for calendar year 2021:
- 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
- New requirement for calendar year 2022 – 1099-K Threshold Change:
- The 1099-K change will take effect January 1, 2022 (part of the American Rescue Plan Act of 2021)
- TPSO will be required to provide customers with a 1099-K form if they receive $600 or more in goods and services transactions during the 2022 tax year.
- Note: This new Threshold Change is currently only for payments received for goods and services transactions, so this doesn’t include payments between family or friends using PayPal or Venmo for dinner, gifts, shared trips, etc.
- For the 2022 tax year, the taxpayer should consider the amounts shown on Form 1099-K when calculating gross receipts for your business income tax return and the IRS shall cross reference the gross amounts.
- If the payments were for personal use, or a not-for-profit activity, these payments may not be subject to income tax, but may still be reported on your return to avoid IRS or state agency tax notices.
- Note: Payee with a Massachusetts address have been receiving 1099-K since 2017, when the gross amount paid in settlement in a calendar year is $600 or greater (regardless of the number of transactions).
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.
Please feel free to contact us directly with any questions.