- 1 Client memo Form 1099 Filing Requirements: What you need to know
- 2 what is form 1099 k used for
- 3 what is form 1099 k used for
Client memo Form 1099 Filing Requirements: What you need to know
Beachwood, NJ 08722
The IRS works constantly to improve income reporting by taxpayers. One tool they employ is requiring businesses to file “information returns” that tell the IRS about amounts the business paid out that should be reported by the recipients as income.
Probably the most familiar of these information returns is the Form W-2 which reports wages paid to employees. Another information return is Form 1099, which is actually a group of more than a dozen different forms that report other types of income to the IRS.
Recently the IRS ramped up its compliance efforts by asking businesses to answer questions about their 1099 filings when they file their income tax returns. This added IRS scrutiny, coupled with steep noncompliance penalties, make it important for every business to check their 1099 filing requirements each year.
Here’s what you need to know about Form 1099 and the filing requirements your business may have.
According to IRS rules, every person engaged in a trade or business, including nonprofit organizations, must file 1099 forms for certain payments made during the year in the course of the payer’s trade or business. Here are some of the most common forms and their filing requirements.
A Form 1099-MISC is used to report payments for services provided to your business by unincorporated vendors when those payments total $600 or more for the year. Typical payments include rents, royalties, and compensation to independent contractors, such as consultants, web designers, accountants, lawyers, and cleaning services.
The IRS has set out five conditions for payments that must be reported using Form 1099-MISC. All of the following five conditions must be met:
The payment was made to a nonemployee.
The payment was made for services provided to the trade or business.
The payment was made to an unincorporated entity (except for payments to attorneys and medical and health care payments).
The payment or payments generally totaled $600 or more for the year.
The payment was not made electronically (e.g., with a credit or debit card or with PayPal).
February 28 – One copy of the Form 1099 must be sent to the IRS by this date of the following year unless the filing is done electronically.
March 31 – If filing is done electronically, this is the deadline for providing the IRS copy.
NOTE: Though all businesses are encouraged to file electronically, it is required for businesses filing 250 or more returns.
PENALTIES – A matter of intent
The penalties for failing to file Forms 1099 range from $30 to $100 per form, depending on how late your filing is and whether or not the failure to file was intentional. Total penalties can go as high as $500,000 for businesses with gross receipts under $5 million or $1.5 million for those with gross receipts over $5 million.
The IRS has increased its scrutiny of 1099 filings. In its efforts to increase 1099 filing compliance, it now asks the following two questions on business tax returns:
Did your business make any payments during the year that would require it to file Form(s) 1099?
If “yes,” did the business file or will it file required Forms 1099?
The Affordable Care Act of 2010 (ACA) included expanded reporting requirements that, although they have since been repealed, still lead to a lot of confusion. The ACA provision would have required Form 1099 reporting for payments made to corporations, as well as those to unincorporated entities. It also would have required landlords to file 1099s for rental-related payments to any provider for services totaling $600 or more for the year. Both of these requirements were repealed in 2011, which leaves 1099-MISC filing required only for payments to unincorporated vendors and no expanded filing required of landlords. (See #4 below.)
If you receive a 1099 with an incorrect dollar amount, request a corrected copy from the payer before tax filing time.
Only trades and businesses are required to report payments made in the course of the business on Form 1099. Personal payments are not required to be reported. (For example, a business owner who pays a dentist $1,500 for dental work on his daughter does not need to report that on a Form 1099.)
Payments of $600 or more to attorneys must be reported on a 1099-MISC, whether they are incorporated or not. Also medical and health care payments made to corporations must be reported.
Payments to vendors by credit or debit card, or by services like PayPal should not be reported on a 1099. The bank or third-party payment provider is required to report those transactions on Form 1099-K.
Nonprofit organizations are considered to be “engaged in a trade or business” even when they don’t operate to generate a profit. They are, therefore, subject to the Form 1099 filing requirements.
The fact that payments may not have to be reported on a 1099 does not mean that the payments are exempt from income tax. The recipient of the income must still report it on his or her income tax return.
To issue 1099s, a business needs the recipient’s “taxpayer identification number” and a mailing address. Generally, this information is obtained by sending the recipient a Form W-9 requesting what is needed. If the recipient fails to provide the necessary information, the business may have to withhold taxes from payments and remit these amounts to the IRS.
For additional information about the 1099 filing requirements that apply to your business, contact our office at (732) 341-3893. MC_4613-1099
what is form 1099 k used for
What is 1099 form for? Form 1099 is IRS form that is used to report various types of income other than wages, salaries, and tips. Form 1099-Misc is issued by your business to a subcontractor or anyone who provides services to you above a threshold during a calendar year. You will skip the 1099 if the provider of services is a corporation. Next we will discuss some 1099 preparation tips that you or your accounting/bookkeeping staff may need to know to issue this IRS tax form.
How to know if the providers of services are corporation?
Payments to corporation are not required to be reported on Form 1099-MISC. This exception is not apply to payments for legal service and medical or health care services.
In order to know if the providers of services are incorporated, you should hand them a form W-9 prior to paying for their services. The provider completes the W-9, by which they can be indicated if they’re a corporation and therefore not subject to receiving a 1099. The W-9 also gives you the tax ID number, without which you cannot file a 1099. This is why you ask for a completed W-9 prior to payment or prior to receiving services, to avoid the sort of conflicts wherein one party asks for the information in order to comply with the IRS regulations and the second party refuses to provide it, while they’ve already received their payment.
What do you do if a subcontractor refuses to provide a W-9?
If they refuse to provide the W-9 after receiving payment for a service, you issue form 1099-Misc with writing "Refused" in the Tax ID box of the form and send it off to the IRS and the subcontractor as usual. It's up to the IRS to deal with the subcontractor, but you've fulfilled your responsibility.
What if materials are included in what you paid to the service provider?
You can break those out, by completing the 1099 for only what the service was. However, you’re not required to if you have all costs posted to the same account in your accounting software and aren’t sure which are materials and which are services, send a 1099 for the entire amount. It’s the provider’s responsibility to deal with that on their own tax return, and it’s rather easily done.
You issue form 1099 to someone for the amount you physically paid them during the year. If they billed you another $100,000 but at year end it’s still on your books as a payable, it doesn’t count. That’ll be for next year.
You can order free 1099 forms from the IRS or buy the forms at the office supply store, and print them. Most accounting or payroll software have capability to print on the 1099 form. You can also file online with various providers who will mail the forms for you and efile with the IRS.
what is form 1099 k used for
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I'm running a small U.S. business. Some users make profit by referring customers to purchase services from me. I've been told that I have to send Form 1099 both to users who make such profits from me (Affiliate Users) and to the IRS. However, I have some questions regarding that form:
- Am I required to send Form 1099 to non-US citizens who are not even residing in the US? Since they're not required to file US taxes, do I still have to send the form to them?
- Is it fine to expose my TIN (taxpayer identification number) to individuals or companies who I send the form to them. Since the form requires me to write my TIN/EIN, what would be the risks of this and what precautions should be taken to avoid inappropriate/illegal use?
- I send payments via PayPal and wire transfer. Should I send form 1099-MISC or 1099-K?
- You don't have a choice.
- It depends, but the options are "no form" or 1099-MISC. You'll never send a 1099-K.
The only 1099 you would potentially be required to send for business payments is a 1099-MISC. The IRS instructions on that are pretty clear as to when and how you must use that.
Note that you don't send 1099-K's unless you are a payment settlement entity. Furthermore, if you transmit the funds using a payment settlement entity who will report the transaction on a 1099-K, then you don't need to report it on a 1099-MISC. (See "Form 1099-K" ibid.)
Fortunately, PayPal is a payment settlement entity, so you don't need to worry about reporting payments you send through them . with one big exception: PayPal does not report "payments to friends and family," and so if you're using that to avoid their fees then the IRS would consider you liable for reporting payments on a 1099-MISC. To my knowledge banks do not report wire transfers, so you would have to file 1099-MISC when required for payments sent that way.
Regarding your TIN: Yes, these numbers get circulated in the course of business. But this is actually one of the few legal uses of those numbers, and it's required, so if you're worried about identity theft or something then buy insurance against that. And if you think you've got it bad, just think how your payment recipient must feel: Before you send funds that would need to be reported next year you are supposed to demand a signed W-9 from them (so that you can make the report). But hey, the IRS isn't oblivious to your concern: Check their "helpful" advice on the last page of W-9 to "Secure Your Tax Records from Identity Theft."