From contractor payments to rental income, 1099s capture a wide variety of transactions that directly impact tax filings, and managing 1099 forms is an essential aspect of maintaining compliance with IRS requirements and accurately reporting non-employment income. Staying proactive and informed about 1099 requirements can help businesses avoid penalties and maintain efficient financial operations.

WHAT IS A 1099?

A 1099 form is a document that is required by the IRS from taxpayers to report non-employment related income paid to vendors such as: contractor payments, dividends, interest, rent, etc. A form 1099 will directly impact tax returns so it is important that the data used to file and the 1099 form file are accurate.

WHO SHOULD RECEIVE A 1099? 

Businesses should issue a 1099 to any individual or business who received non-employment related payments from them for services or rent over $600. Businesses should also issue a 1099 to any individual who received payments for royalties or interest over $10. There is a corporation rule that will exempt a vendor from receiving a 1099. That rule applies to businesses who are a corporation or are taxed as a S-Corporation or C-Corporation. The only exception to this rule would be for legal services, which should be issued a 1099 regardless of their business classification. 

FORM W-9

A W-9 is the form that can be sent to vendors to obtain their TIN and information to be used to file a 1099. This form contains fields for the business name, address, TIN and signature for certification. Good practice would be to request a form W-9 from vendors prior to issuing payment. 

TOP 5 MOST COMMON 1099 FORMS

• 1099-NEC: The most common form most businesses will use. This form is used to report non-employee compensation, such as payments to individuals or businesses that provided a service over $600 for the tax year that were not compensated through a payroll provider. Some examples can include: Legal services, accounting services, cleaning services, management fees, IT services, etc.
• 1099-MISC: Used to report miscellaneous income including rents, prizes or awards, medical and healthcare payments over $600. Royalties paid over $10 would also be reported on this form.
• 1099 – INT: Used to report interest paid over $10 and is typically issued by banks or financials institutions but can be issued by businesses if they paid interest on a loan to an individual.
• 1099 – DIV: Used by banks and other financial institutions to report dividends and other distributions to taxpayers and to the IRS.
• 1099-K: Reports payments received for goods or services such as gift cards or third-party payments that are over $20,000 from over 200 transactions. This form is issued by payment card companies, payment apps and online marketplaces. Examples include: PayPal, Stripe, Shopify, etc.
  • NOTE FOR 1099-K: Businesses need to ensure that they are not issuing Form 1099 NEC or 1099 MISC for vendor payments that were processed through these merchants as that will result in a duplication in the IRS system.

1099 DEADLINES – 2024 TAX YEAR

To learn more about how businesses can manage 1099s and other day-to-day financial operations, please contact GHJ’s Client Accounting and Advisory Services Practice.