1099 Filing Requirements & Filing Deadline
By Melanie Hou, CPA & Emily Irving
It’s hard to believe another year is coming to a close and the upcoming tax season is quickly approaching. We thought it would be helpful to remind you of the information return filing requirements for all businesses. If you have a new business, we alert you to some requirements that you may not be aware of. Please review this newsletter carefully and contact us if you have any questions about the filing requirements.
The IRS wants to know if you are required to issue Form(s) 1099-MISC.
If you own a business and are filing as a corporation (Form 1120 or 1120S), a partnership (Form 1065), sole proprietor (Form 1040 Schedule C), or if you own a rental property (Form 1040 Schedule E), you will be required to answer the following questions on your tax return regarding 1099 filing requirements every year:
Question A: Did you make any payments in 2017 that would require you to file Form(s) 1099?
Question B: If “Yes,” did you or will you file required Forms 1099?
Answering “Yes” to the first question and “No” to the second question could potentially raise a red flag with the IRS. Obviously, knowing how to answer Question A is important.
Who Must File Form 1099-MISC?
A business owner must file Form 1099-MISC for each person who was paid during the calendar year:
- At least $10 in royalties,
- At least $600 in rents,
- At least $600 for services (including parts, materials, and reimbursements),
- At least $600 in prizes, awards, other income payments, medical and health care payments, or crop insurance proceeds, of
- At least $600 to an Attorney or Law Firm for services.
You must also file Form 1099-MISC for each person from whom you withheld federal income tax under the backup withholding rules, regardless of the amount.
No requirement for personal payments!
Please report payments made on Form 1099-MISC only when those payments are made in the course of your trade or business. You are engaged in a trade or business if you operate for gain or profit. Nonprofit organizations are considered to be engaged in a trade or business and are also subject to the reporting requirements. Payments made for services rendered for the personal benefit of an individual are not reportable. An example would be paying a maintenance company to mow your lawn.
Businesses (including sole-proprietors) make payments to vendors throughout the year for which a Form 1099-MISC may need to be issued. Here are a few examples:
- Rent payments made to landlord
- Consulting fees paid to contractors/sub-contractors for services rendered
- Payments made for office cleaning, repairs, etc.
Form 1099-MISC is NOT required for the following payments:
- Payments to a corporation, including a limited liability company (LLC) that is treated as a C or S Corporation (with the exception of medical health care payments and attorney fees, which still must be reported on 1099-MISC regardless of entity type);
- Payments made with a debit or credit card;
- Payments for merchandise, telegrams, telephone, freight, and storage, and similar items;
- Payments of rent to real estate agents or management companies;
Wages paid to employees (reportable on W-2);
- Business travel allowances paid to employees (also reportable on W-2); or
- Payments to a tax-exempt organization,
- Individuals/Landlords do not need to file Form(s) 1099-MISC if they are not in the business of renting property
Landlord’s Form 1099 Filing Requirements:
Rental property owners frequently hire individuals/companies to help maintain their rental property and pay for services such as yard work, cleaning, repairs, etc. Landlords only need to file Form 1099 when their rental activities rise to the level of operating a trade or business. This means that most small landlords remain exempt from the requirement to file Form 1099-MISC for their service providers, even if they own more than one rental property. The 2012 instructions for Form 1099-MISC indicate “the requirement described in the 2011 instructions for persons receiving rental income from real estate to report payments for certain rental property expenses on Form 1099-MISC was repealed by Congress.” You do not have to report those payments on Form 1099-MISC. We realize it can be very difficult to determine if your rental activities qualify as a trade or business and are subject to the 1099 filing requirements. Please do not hesitate to consult with us to determine the proper treatment in order to avoid any penalties.
The backup withholding requirement applies to reportable payments for which the payee does not furnish or provides an incorrect taxpayer identification number (TIN). If you make payments to an individual/company which are required to be reported on Form 1099-MISC, and the recipient does not provide you with correct information for filing, the IRS requires you to withhold 28% of the amount paid for remittance to the IRS before paying for the services. Once the recipient returns the correct requested information, you can stop backup withholding, and use the new information for future reporting.
The Filing Deadline
In 2016, Congress set new deadlines for submitting government copies of Forms W-2 and 1099. If you are reporting nonemployee compensation payments in box 7 of Form 1099-MISC, the 2017 filing deadline with the IRS is Wednesday, January 31, 2018. This means that not only will you be required to provide recipients with their 1099-MISC by January 31st, but you will also need to file Federal Copy A of Form 1099-MISC and Form 1096 with the IRS by January 31st as well.
Failure to file Form 1099-MISC by the due date:
If you fail to file a correct information return by the due date and you cannot show reasonable cause, you may be subject to a penalty.
- $50 per return if you correctly file within 30 days.
- $100 per return if you correctly file more than 30 days after the due date but by August 1st.
- $260 per return if you file after August 1st or you do not file required information returns.
If you fail to provide Form 1099-MISC to the recipient by the due date and you cannot show reasonable cause, you may be subject to a penalty. This is a separate penalty, and is applied in the same manner as the penalty for failure to file correct information returns by the due date.
What should I do now?
Start by looking through the vendors you paid for services or rent related to your business and identify vendors who were paid a total of $600 or more during the year.
* Note that the $600 threshold is based on the total payments made to the individual/company in a calendar year.
Send Form W-9, Request for Taxpayer Identification Number and Certification, to each possible 1099 recipient and request that the form be completed and returned to you as soon as possible if you have not already done so.
Unfortunately, it can sometimes be difficult to request a completed Form W-9 from vendors after you have paid them for their services. This is why it is important to have everyone complete or provide an already completed Form W-9 to you before issuing a payment for services rendered.
Filing your required Forms 1099/1096
The end of the year is coming up, so it’s time to start planning. Due to the shortened deadline, it is important to be aware of 1099-MISC filing requirements and to have all information needed to complete these forms in the beginning of January 2018.
There are many other types of information returns that you may be required to file depending on the types of activities in which your business engages in. If you have any questions or would like assistance with the preparation of Forms 1099 and 1096, please give us a call.