How do I gather information to issue a 1099?
- Collect the following form from vendors: IRS Form W-9
- Complete this vendor template.
- Submit to Hancock Askew for preparation. HAC deadline: January 18, 2021 OR
- Visit Tax1099.com and create a free account and issue your 1099s by the IRS deadline: January 31, 2021
Requesting Federal Form W-9 prior to initiating payment(s) to a payee is an important first step in the 1099 process. The information the payee provides on this form, along with other information regarding the type of payment, will help determine if a 1099 is required. The W‐9 provides the following information:
- Business and/or individual’s name and address
- Business and/or individual’s structure (i.e. corporation, LLC, sole proprietor, etc.)
- Social Security Number (for sole proprietorships and individuals) or Tax ID Number (for applicable business entities)
Timely submission of 1099s to meet IRS requirements rely heavily on completed Forms W-9s from vendors.
We recommend that our clients obtain a completed W-9 prior to issuing any payment regardless of amount. We have found that it can be difficult to collect the required information after payment has been collected. For instance, you may hire a subcontractor for a one-time job in the middle of the year, only to find that the company no longer exists or the individual has moved.
When is the filing deadline?
The IRS deadline for filing 1099s for the 2020 tax year is January 31, 2021.
Please submit your information no later than January 18th, 2021 if you would like HAC to prepare your 1099s.
Why are 1099s important?
Reporting 1099 information to the IRS helps ensure that everyone is appropriately reporting income earned during the year. Over the last few years, the IRS has increased correspondence and enforcement on businesses and individuals who have filed 1099s late, incorrectly, or failed to file them at all. Coupled with their heightened vigilance in these areas, the laws have enabled a significant increase in penalties for late filing and/or failing to file 1099s.
The penalties for not submitting 1099s for the 2020 tax year are as follows:
Small businesses with average annual gross receipts $5 Million or less for the most recent 3 taxable years
- Filing up to 30 days late: $50 per 1099; maximum penalty $194,500
- Filing 31 days late up to 08/01/19: $110 per 1099; maximum penalty $556,500
- Filings after 08/01/19 or not at all: $270 per 1099; maximum penalty $1,113,000
- Intentionally non‐filing: $550 per 1099; with no limitations on penalties
Large businesses with average annual gross receipts of more than $5 Million for the most recent 3 taxable years
- Filing up to 30 days late: $50 per 1099; maximum penalty $556,500
- Filing 31 days late up to 08/01/19: $110 per 1099; maximum penalty $1,669,500
- Filing after 08/01/19 or not at all: $270 per 1099; maximum penalty $3,339,000
- Intentionally non-filing: $550 per 1099; with no limitations on penalties
Who needs to be issued a 1099?
If the following four conditions are met, you must generally report payment(s) you made via cash or check to a payee as non‐employee compensation and issue a 1099:
- Payment(s) to someone who is not your employee
- Payment(s) for services to a trade or business
- Payment(s) to an individual, partnership, estate, or in some cases, a corporation
- Payment(s) to a payee of at least $600 during the year
Other payments to payees that may require a 1099 include:
- Interest payments
- Dividend payments
- Cancellation of debt/ income
- Rents and/or royalties
- Settlement payments to attorneys
Some payments are not required to be reported on Form 1099‐MISC, although they may be taxable to the recipient. Payments for which a 1099 may not be required include:
- Payments to a corporation or S Corporation
- Payments for merchandise, telegrams, telephone, freight, storage, etc.
- Business travel allowances or reimbursements paid to an employee (these may be separately reportable on other forms)
- Personal expenses
- Payments for goods (materials, hardware, appliances etc.)
- Note: Payments made via a credit or debit card, gift card or a third-party payment network such as PayPal never require a Form 1099.