By Lyssa Kemper, CPA, Senior Manager
As we approach the mid-point of the year it is a great time for a refresher on 1099 reporting requirements. See the useful tips below to get on track for the 2024 1099 season.
If you are an individual, estate, or trust (unless you own rental real estate or other property) you do not need to file 1099s and do not need to read further.
WHAT YOU NEED TO KNOW
The IRS requires businesses, individuals with rentals, and non-profit entities to issue Form 1099 to certain individuals and entities who received payments for service, rent, royalties, interest, and dividends over certain dollar thresholds during the calendar year. Each type of payment has different requirements, including dollar amount threshold and reporting requirements.
Form 1099NEC – Most 1099s issued are of this type.
- Services performed by someone who is not your employee (and is not a corporation) in an amount of at least $600
- Payments to an attorney of at least $600 paid to any individual or entity, including corporations
Form 1099MISC – Most 1099MISC are issued for rent payments, but there are several other types (below) that may apply to you.
- Rents paid for $600 or more – These include rents on building, land, and equipment.
- Royalties paid in the amount of $10 or more – These royalties can be from oil, gas, other mineral properties, intangible property such as patents, copyrights, trade names, and trademarks.
- Other income paid of $600 or more – This may include prizes, an award, and the fair market value of merchandise won. This may also include deceased employees’ wages, payments for medical research studies, all punitive damages, and other taxable damages.
- Medical and health care payments paid to any individual entity or corporation
- Payer-made direct sales totaling $5,000 or more of consumer products to a person for resale
- Gross proceeds paid to an attorney of $600 or more in connection with legal services, but not for services, i.e., a settlement agreement
- Excess golden parachute payments of any amount
- Non-qualified deferred compensation paid of any amount
Form 1099INT
- Payments of interest to a non-financial institution of at least $10
Form 1099DIV
- Payments of dividends of $10 or more
Form 1098
- Payments of mortgage interest of $600 or more you received during the year in your trade or business from an individual – The requirements for this form are different than the other 1099 forms as it is issued by the person receiving the funds instead of the one issuing them. Note: Form 1098 requires the loan amount, outstanding mortgage principal, origination date, address of property securing the mortgage, and interest received.
There are various other 1099 forms less likely to be used outside of specific circumstances. If you have questions about a certain circumstance, please reach out to your MichaelSilver trusted advisor.
When you report on 1099 a recipient’s payments, the IRS uses this information to match that recipient’s tax return. Because of this, care should be taken when reporting 1099 details and all information should be accurate and complete to avoid any notices at either end.
Now that we know the type of payments required to be reported, we will discuss the actions necessary.
ACTIONS REQUIRED
To ensure compliance with IRS regulations and to facilitate timely processing in the new year, we kindly request that you begin collecting the necessary information from your vendors and contractors. This typically includes:
- Vendor Information: Full name, address, and Taxpayer Identification Number (TIN) or Social Security Number (SSN). This information should be filled in on Form W9 by your vendor. By reviewing this information, you will know if a 1099 needs to be filed for this vendor. Any vendor that has marked C corporation, S Corporation, or an LLC with the classification of C or S (unless it is related to payments for attorney fees and medical fees, these types of payments are exempt from this rule) will not need to receive a 1099 even if they meet the dollar threshold. https://www.irs.gov/pub/irs-pdf/fw9.pdf
- Payment Details: Total amount paid during the year (on a cash basis) to each vendor or contractor. This can be done by ensuring that all payments are properly coded to that vendor in your accounting system to allow you to easily pull reports at the end of the year with the total amount paid.
Please note that accurate and complete information is crucial to avoid penalties or delays in issuing 1099 forms in January 2025.
BEST PRACTICES
- Work on your 1099 obligations throughout the year as you hire contractors. Do not wait until the end of the year.
- Collect your W9 information as soon as you hire a contractor, or at the latest, before you make your first payment to the that contractor.
- Use your accounting software to request W9s from your contractors. This allows all of the details to be saved directly into the software where you issue your 1099s or where 1099 reports are created for us to use to prepare your 1099s.
HOW WE CAN HELP
If you have any questions about the information required or need assistance gathering data, please contact us. Our team is here to support you and ensure that your reporting obligations are met efficiently. Your MichaelSilver trusted advisors can be reached at 847.982.0333.
Thank you for your attention to this matter. We appreciate your cooperation in helping us proactively prepare for the 2024 1099 season.
We will be sending along a second notification as we get closer to year-end with instructions on how to send us your 1099 information in time for filing in January 2025.