You might have gotten interest-bearing income from a bank account as non-employment income. or from a stock brokerage account that holds dividend-paying securities. Or perhaps you worked as a freelancer or independent contractor. Or perhaps you got unemployment compensation. To report non-employment income to the IRS for tax purposes, a specific version of the 1099 form must be used for each type of non-employment income.
Although businesses probably dislike sending them even less than taxpayers do, 1099s are necessary to maintain track of revenue that isn’t included in a person’s wages or salary seen in a W-2. In fact, the Internal Revenue Service (IRS) compares almost all of your employer’s W-2 and 1099 tax forms to your Form 1040 tax returns or other tax documents. The IRS might inform you that you owe additional money if they don’t match.
Who Receives a 1099 Form?
In general, if you pay someone $600 or more in rent, services (including parts and materials), prizes and rewards, or other income payments, you must send them a Form 1099-MISC. For payments made for personal use, you are exempt from the requirement to produce 1099s. Only payments you made in the course of your trade or business must be reported in 1099-MISC forms, which you must submit to any individual, partnership, Limited Liability Company, Limited Partnership, or estate.
To report specific non-employment income to the IRS, such as stock dividends or compensation you received as an independent contractor, utilize Form 1099. Any payee (other than a corporation) who receives at least $600 in non-employment income during the year requires businesses to send 1099s. The $600 threshold regulation does have some exceptions, though. For instance, if a client received $10 or more in interest revenue, a financial services company will normally issue a 1099.
Depending on the kind of income received throughout the tax year, there are many 1099 varieties. There are 20 different types of 1099 forms as of 2022, and the following are some of the most well-liked ones. It’s not necessary to make the 1099 difficult. Here is a summary of the fundamentals to help make things easier.
What are the penalties?
Depending on how far over the deadline the corporation issues the form, the penalty for failing to do so can range from $30 to $100 per form ($1.5 million for the year). A minimum penalty of $250 per statement, with no maximum, is imposed on a company if it willfully fails to furnish an accurate payee statement.
What are the exceptions?
Although there are quite a few exceptions, the most frequent one is that you don’t have to send a 1099 when paying rent to businesses or real estate brokers (this is mainly in case of property managers and they need to send them to the property owners). Additionally, you are not required to issue 1099s to suppliers of goods, services, or other comparable goods.
Here, lawyers are given the short end of the stick. Ironically, even if your lawyer is “incorporated,” you are still obligated to give them a 1099 if you paid them more than $600 because the government doesn’t trust lawyers to record all of their revenue.
Deadlines to Send 1099 Form
By January 31, you must issue and practically send all of your Form 1099s to your vendors. The transmittal Form 1096 must then be sent to the IRS by February 28. For those of you that “outsource” this service, your accountant can actually submit the 1096 and stack of 1099s online by March 31 if they have the right infrastructure in place. Remember that you might also be required to file the 1099-MISC with the state, depending on state legislation.
The Procedure To Send 1099 Form
It is simply impossible to visit IRS.gov, download a tonne of 1099 forms, and distribute them to your vendors in time for the deadline. The IRS “pre-prints” the form in three copies. Therefore, you must request the forms from the IRS and pick them up at an IRS service center; alternatively, you may purchase the forms through the post office or another retailer while supplies last. Next, don’t forget to gather up all of your 1099s and send them, together with a 1096 form, to the IRS by the end of the next month.
