Businesses which pay independent contractors $600 or more during the January 1, 2016 – December 31, 2016 calendar year for services and rent (and certain other payment categories) must file Form 1099-MISC, Miscellaneous Income, with the payee (recipient) and Internal Revenue Service (IRS). This information reporting requirement is imposed on businesses to help ensure tax compliance by the recipients.
Forms 1099-MISC must be issued to all payees who are not incorporated. This includes individuals, partnerships, and most Limited Liability Companies (LLCs). As a rule of thumb, if the payee doesn't have "Inc." or "Corp." at the end of their business name, they should probably be issued a Form 1099- MISC. A notable exception to this rule is for payments to attorneys. As long as the $600 threshold is met, the attorney or law firm should always be issued a Form 1099-MISC even if the law firm is incorporated.
There is an exception to the 1099-MISC reporting requirements for payments made to a vendor using a payment card such as a credit or debit card. Vendors receive a reporting of these payments from the credit card company, and therefore are exempted from receiving a 1099-MISC reporting the same payment. This eases the reporting requirements on businesses. The only payments that need to be reported on form 1099-MISC are those made by cash, check or electronic withdrawal.
Compliance with Form 1099-MISC filings by businesses that make reportable payments is becoming a priority of the IRS. Form 1099-MISC is required to be furnished to payees and the IRS by January 31, 2017. Taxpayers should review all payments made during 2016 and determine if a Form 1099-MISC is required. Generally, the following information is needed for each recipient:
1. Legal name
3. Tax identification number
4. Amount paid
It is common and suggested best practice to obtain the above information from vendors or independent contractors prior to commencement of work or initiating payment to them. This is done by asking the recipient to complete IRS Form W-9, Request for Taxpayer Identification Number and Certification. This Form is not filed with the IRS.
Failure to comply with the issuance of Form 1099-MISC filings can result in a potential $100 - $250 penalty for each missed form, depending upon the number of forms. In addition, there are specific questions inquiring whether Forms 1099s have been properly issued on all business income tax returns, so this is a filing which should not be ignored.
Our office can assist with the preparation and filing of these forms. Please consult your WG advisor for more information.