Beyond even knowing how to file a 1099, you just want to know whether you even need to file 1099s. We prepare hundreds of 1099 forms each year and can share with you some of the areas to consider to determine whether you need to file 1099s.
Who needs to file 1099s?
Almost every business needs to file 1099s. These are required if you make qualifying payments related to carrying out your trade or business. Non-profit organizations are also required to file 1099s, as they are considered to be engaged in business. However, you do not need to report payments if they were personal in nature.
There are several factors that determine whether a vendor or payment should be included in 1099 reporting. Some of these factors are:
- Nature of the expense
- Total amount paid to vendor
- Form of payment (cash, check, credit card, etc)
- Vendor entity type
What kinds of payments require 1099s?
Often when people think of 1099s, they think of payments to subcontractors. Subcontractor payments certainly are one of the most common kinds of expenses requiring 1099 filings. With regard to 1099s, this is known as non-employee compensation. This means that if you paid someone who is not an employee $600 or more for services rendered, you may need to file a 1099-NEC form.
Perhaps you determine that you did not pay anyone for services more than $600. Does this mean that you are in the clear and do not need to worry about filing 1099s? Not necessarily. There are other types of payments that may need to be reported on either a 1099-MISC or 1099-INT form. Some examples are:
- Prizes or awards
Are there any exceptions?
Many businesses are aware of the $600 rule. This refers to the rule that if the total amount paid to a vendor during the calendar year was less than $600 then you do not need to file a 1099. This is true with some kinds of 1099 filings,but not for all. For example, royalty payments are subject to 1099 reporting if they total $10 or more.
Another rule that is commonly known is that payments to corporations do not require 1099 reporting. Again, this is true with some very important exceptions.
For example, payments to attorneys are subject to 1099 reporting even if they are a corporation. Additionally, there are specific rules for how various kinds of payments made to attorneys should be reported. In fact, payments made to the same attorney may need to be reported on different forms depending on the type of payment.
One notable exception is that payments made with a credit card do not require 1099 reporting.
The instructions for filing 1099s are quite lengthy and detailed. Being familiar with the rules is necessary in determining if specific payments require a 1099 filing. Since some of these payments might not be obvious, it is important to complete a detailed review of your accounting records.
If this sounds overwhelming, there is no need to panic. You do not have to do this alone. Helping clients with 1099s is part of what we offer to our ongoing clients. Let us know if you would like more information about our services.