There are several types of 1099 forms, such as 1099-NEC (Nonemployee Compensation payments to independent contractors) and 1099-Misc (Miscellaneous Income payments), used for reporting transactions that occurred during the previous tax year. These informational returns are mandated by the Internal Revenue Service (IRS), and they typically involve payments made to independent contractors or for miscellaneous income. The threshold for reporting is often at least $600 in most cases, and these reportable payments are associated with the conduct of a trade or business.
Businesses should take to steps to comply with IRS 1099 rules for the year of 2023. Let’s review the steps:
- Review 2023 IRS 1099-NEC and 1099- MISC instructions: Businesses should familiarize themselves with the specific instructions provided by the IRS for completing and filing 1099-NEC and 1099-MISC forms.
- Decide whether your business needs to file other types of Form 1099: Depending on the nature of business transactions, there may be a need to file other types of Form 1099. It’s essential to identify and fulfill any additional filing requirements.
- Determine who needs to submit and IRS form W-9 (or foreign equivalent) to the company: Collecting W-9 forms from applicable individuals or entities is crucial for accurate reporting. This form provides necessary information, including the taxpayer’s identification number. Consider collecting this information before payments are made.
- Confirm that all required W-9 forms have been received for preparing 1099-NEC forms and 1099-MISC forms: Ensure that W-9 forms are obtained from relevant parties to accurately complete and submit the required 1099 forms.
- Remember to report backup withholding of income taxes on Form 1099s: If backup withholding is necessary, it should be reported appropriately on the 1099 forms.
- Review 2024 tax compliance deadlines and e-file requirements: stay informed about tax compliance deadlines and any changes to e-filing requirements, especially considering changes start January 1, 2024.
- Order official IRS 1099 forms online: If paper filing is preferred, businesses should order official IRS 1099 forms online to ensure compliance with formatting and content standards.
- Determine that 1099 amounts tracking is adequate or make corrections: Verify that the tracking of 1099 amounts is accurate, and make any necessary corrections to avoid errors in reporting.
- Distribute copies of 1099s to the payees, the IRS, and any state with income taxes: Follow the appropriate procedures for distributing copies of 1099 forms to payees, the IRS, and relevant state authorities using required IRS transmittal forms for paper copies.
- Meet IRS deadlines and requirements to avoid fines and penalties: Adhere to IRS deadlines and requirements to avoid potential fines and penalties associated with non-compliance and late filing.
Taking these steps helps ensure that businesses fulfill their reporting obligations and remain in compliance with IRS regulations. If you have further questions or need more information, feel free to contact DMJPS.
The 2023 IRS 1099 rules (reporting in 2024) require business payers to report payments for certain transactions on Form 1099-Misc. They can be found here: https://www.irs.gov/forms-pubs/about-form-1099-misc
The IRS 1099 rules for tax form 1099-NEC require business payers to report payments of $600 or more for income payments to non-employees, if your business made direct sales of at least $5,000 of consumer products to a buyer without a permanent retail establishment for resale, and the amounts of backup withholding for federal income taxes and state tax.
- Examples of non-employees include self-employed independent contractors like freelancers and most real estate agents completing real estate transactions (unless they’re an employee.)
- The TIN may be a Social Security Number (SSN) or Employer Identification Number (EIN.) The TIN must be correct on each 1099 filed by the business. Independent contractors are required to use for W-9 to report their information to the business payer. https://www.irs.gov/pub/irs-pdf/fw9.pdf
Form 1099 Filing deadlines in 2024 are different for 1099-Misc and 1099-NEC. The IRS 2023 General instructions for certain information returns says “File and furnish a copy of Form 1099-NEC on paper or electronically by January 31, 2024. File Form 1099-MISC with the IRS by February 28, 2024, if you file on paper, or April 1, 2024, if you file electronically.”
Ten returns filed is the threshold for 1099 returns of each specific type that must be filed electronically, beginning with the year 2023. Expect a penalty notice if more are sent in paper form.
IRS penalties for untimely, incorrect, incomplete, or non-filing of 1099 returns and other information returns are specified in the Internal Revenue Code sections IRC 6721, IRC 6722, and IRC 6723. The penalties apply to each 1099 form, and the total amounts can be quite large.
According to IRS General instructions for Certain Information Returns (2023), the 1099 penalties or fines applying to filing Form 1099s for 2022 are as follows.The amount of the penalty is based on when you file the correct information return. The penalty is as follows.
- $60 per information return if you correctly file within 30 days (by March 30 if the due date is February 28); maximum penalty $630,500 per year ($220,500 for small businesses, defined below).
- $120 per information return if you correctly file more than 30 days after the due date but by August 1; maximum penalty $1,891,500 per year ($630,500 for small businesses).
- $290 per information return if you file after August 1 or you do not file required information returns; maximum penalty $3,783,000 per year ($1,261,000 for small businesses).
If you do not file corrections and you do not meet any of the exceptions to the penalty described later, the penalty is $310 per information return.
The IRS specifies some exceptions to these penalties. A penalty doesn’t apply to any failure due to reasonable cause and not willful neglect or inconsequential errors or omissions. Penalties won’t be charged on a certain number of returns if the de minimis rule applies.
However, the IRS increases per information return penalties (applying to 1099s) and removes the maximum penalty in the case of intentional disregard of filing requirements.
Refer to IRS general instructions for certain information returns to find a complete list of types of 1099 returns for businesses. The look at the specific instructions for that form to discover payments and investment or barter proceeds, and Form 1099-K.
Other types of 1099 forms include 1099-DIV, 1099-INT, and 1099-B to report interest and dividend payments and investment or barter proceeds, and Form 1099-K.
Form 1099-K is for payment card and third party network transactions reporting. Form 1099-K applies to credit cards and other types of payment card processing for which the business receives proceeds. Companies like PayPal, Venmo, and eBay may be used for making taxable payments to independent contractors and others.
Additional information on the types of 1099s and extensive Form 1099 is provided by the IRS on their website, https://www.irs.gov.
Emily White, EA, CHBC
Emily White is a Senior Manager at DMJPS CPAs + Advisors leading Healthcare Consulting and Client Accounting and Advisory Solutions. Emily leads new client onboarding procedures and responds directly to all clients’ needs. Her experience also extends to bookkeeping and payroll management for physicians, dentists, and their related practices.