Who Gets a 1099?
The IRS requires all businesses to file Form 1099-NEC or 1099-MISC for each non-incorporated payee to whom they paid $600 or more for non-employee compensation or rent, or to whom they paid $10 or more of royalties. Form 1099-NEC is used to report non-employee compensation. Form 1099-MISC is used to report miscellaneous income, such as rent to your landlord or royalties paid. There are other 1099 thresholds which you will probably not have to use, for example for fishing boat proceeds and Indian gaming winnings. Some payments to corporations are reported; see discussion below.
Please note the payments are for SERVICES, like consulting or commissions, not for the purchase of goods. The payments must have been for BUSINESS, not for personal things. The amount reported is the total of PAYMENTS, not the total of purchases (so amounts owed to a vendor at year end are NOT included and amounts that WERE owed at the start of the year that got paid during the year ARE included – you add up the checks written to that vendor).
Rents can be of space or of stuff.
HOW DID YOU PAY?
Payments made via cash, check or non-cash trades are reportable. Payments made to payees via credit card or a third-party network (such as PayPal) do NOT get reported on a 1099. For this purpose, payment processors like Venmo and Zelle are NOT considered credit cards. These services generally should not be used to pay for services through the course of your business but if they are, you should report these transactions to the appropriate 1099-NEC or 1099-MISC.
CONTRACTORS
Where the value of trade given a contractor for services is $600 or more, you are still supposed to give them a 1099-NEC for the value of the compensation – even though it was not in cash.
FEES AND EXPENSES
Where a client paid a subcontractor for FEES and EXPENSES, generally the payer reports the TOTAL paid on Form 1099-NEC. The subcontractor herself will deduct the part that was reimbursement of costs on her own tax return. If the vendor provided goods and services, for example, sold the client furniture and also refinished other furniture, Form 1099-NEC should include just the service portion.
If you paid a subcontractor for fees and expenses, and the subcontractor submitted those expenses to you for reimbursement separately, you should only report the fees/service portion of the on 1099-NEC, and your business should deduct the expenses paid.
PARTNERSHIPS
Partnerships and LLCs or LLPs taxed as partnerships DO get 1099s; so do trusts and estates. Only corporations do not. (LLCs can choose to be taxed as corporations; such LLCs would thus NOT get 1099s unless they were lawyers or health care providers – see below.)
Payments to partners of a partnership or to employees of a business are NOT reported on Form 1099 unless the payments are outside the normal duties of the payee. For example, if I am a clerk for a business, I get a W2. But if I ALSO have a late-night cleaning service and clean the office as such, I would get a 1099 for the cleaning payments.
LAWYERS
Payments to LAWYERS are reported on Form 1099-MISC or Form 1099-NEC whether or not the lawyer is incorporated. Report regular legal fees on Form 1099-NEC. Report payment of settlement proceeds to attorneys on Form 1099-MISC.
MEDICAL CARE
Payments for MEDICAL AND HEALTH CARE are also reported on Form 1099-MISC even if the doctor or other health care practitioner is incorporated. There is a special box on Form 1099-MISC for medical and healthcare payments.
PAYEES
It is important that the names used for payees on Form 1099 match the tax ID#s. If a vendor uses his SS#, then his personal name should be used for the 1099 and not some trade name.
WHEN TO FILE
The payees should get Form 1099-NEC and MISC forms postmarked by Jan 31. If Jan 31st/Feb 28 is on a weekend, the postmark date is the first business day after the 31st. The IRS should get its copies of 1099-NEC with a cover Form 1096 postmarked by Jan 31, and 1099-MISC by Feb 28 (Feb 29 in leap years). Some state revenue agencies also require a copy of these forms.
TOOLS
Various accounting programs can generate Form 1099 or can produce reports with the needed information. In addition, payroll services, including cloud-based services like Gusto, can file the forms for you.
