
Form 1099 is considered an information return by the Internal Revenue Service. These returns must be filed annually, and the deadline for the 2024 tax year is January 31, 2025. There are over 20 different types of 1099 forms. However, most small businesses only need to be concerned about a few. The primary forms utilized by small businesses are the 1099-MISC and the 1099-NEC. These forms can seem overwhelming and confusing for the average owner. The information guide provided below will assist in answering some of the frequently asked questions regarding the requirements.
When a business hires an employee, the owner must complete several forms to comply with state and federal reporting requirements. These forms are typically familiar, as many entrepreneurs have been employees during their lifetime. The required forms include Form W-4 and Form i-9. However, many business owners need to familiarize themselves with the requirements related to payments made to other vendors who may not be employees but are still providing a service for the business. There are still federal reporting requirements for these payments. Just as a business owner completes the necessary documents to hire an employee, they should also ensure they request a Form W-9 from any individual or business that requires payment for services. While a few business types may not require filing, requesting a W-9 from any service vendor is best practice. It is also vital to request completion of this form before issuing payment to ensure the vendor will complete it. If a business pays a vendor $600 or more in cash or check payments in a calendar year, the owner must report the payments on an annual Form 1099-NEC or 1099-MISC to the IRS. The form aims to allow the IRS to verify that income payments were recognized.
Here are a few examples of vendors who should receive a 1099:
Any vendor who has provided professional services (accountants, engineers, architects, and attorneys)
Non-employees who are earning a commission
Independent contractors who get paid for services, goods, or travel
Rent expense payments
Here are a few examples of payments that do not require a 1099:
The purchase of goods & other tangible assets does not generally require a Form 1099, though if goods are part of the service provided, they are to be included in the sum of payments
Generally, payments made to a corporation or LLC formed as a corporation (S Corp or C Corp)
Venmo transactions are reported through a 1099-K depending on the type of profile and expenses reported for business purposes.
Payments made for personal expenses and not in the course of trade or business
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FREQUENTLY ASKED QUESTIONS
Am I required to file a 1099?
US tax law requires you to file a Form 1099 for any non-employee you paid more than $600 in the tax year and who meets the IRS guidelines. Your federal income tax return requires the taxpayer to certify if they were required to file and if those forms were filed as anticipated.
What is the difference between a Form 1099-NEC & a Form 1099-MISC?
Form 1099-NEC is shortened for non-employee compensation. It is the most common form utilized to report payments to independent contractors. Form 1099-MISC reports various other expenses, such as rent, attorney payments, and other income.
Why is it best practice to request a W-9 from any service vendor before issuing payments?
The W-9 collects specific information from the vendor, such as name, address, tax classification, and taxpayer identification number. It also includes a critical signature that certifies that the vendor is providing the correct information. You might consider backup withholding if a contractor refuses to sign a W-9. The back withholding rate for 2024 is 24%. Suppose the business needs to collect the required backup withholding that is determined. In that case, it may become liable for any uncollected amount.
What happens if the vendor refuses to complete a W-9?
Unfortunately, the business owner is responsible for having the correct W9 information for the 1099 filing.
What if a check payment to a vendor is not posted to the bank until after the end of the year?Â
The sum reported on the 1099 is on a cash basis, which means that once the amount has been posted to the bank account, it will be recorded in the current tax year. For example, suppose you write a check on December 16th, which is cashed on January 2nd. In that case, that sum will not be included until the following year.
What if a contractor is an international business?
You will not be required to file a 1099 for international business payments. However, your business should complete a W8-BEN form.
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