Learn about 1099 forms, who needs to file them and many other common questions with PFBF’s help video series…
Jessica Marin, Accountant
What is a 1099?
A 1099 is a type of form that reports other sources of income besides wages, such as income from self-employed services, interest income and dividends, and rental payments received from your property. The self-employed services include independent contractors, sole proprietors, partnerships, and LLC’s for the amount they were paid for services rendered during the tax year.
Who needs to file them?
Anybody that pays someone for services rendered that is part of a business filed on its own or sole proprietorships, farms, and rental properties if rentals are their trade or business that are filed within the individual tax return.
An example of the rental properties being a trade or business or not is given below.
I have a rental property and occasionally hire a repair man to fix leaky sinks. I have a full time job at an accounting firm and this is just an investment property on the side. I end up paying the repair man over $600 during the year. Do I need to file 1099s?
The answer is no. The only people that need to file 1099s are when services are performed within their sole trade or business and since I have a full-time job otherwise and it is simply an investment property, I am not required to file a 1099 for contractors.
Why do you file them?
To be sure income from all sources is properly claimed and recorded on the business returns and the individuals’ personal tax return. This allows for the IRS to track both the expense on those who paid for the service and income for those who performed the service.
An independent contractor vs. employee, what’s the difference?
An independent contractor must meet the following criteria to not be considered an employee:
- Does the person control their own work load?
- Does the person set their own hours?
- Does the person run a business of their own?
- Do they have their own insurance covering the services they are providing?
If you answered yes, than this person would be required to receive a 1099 at the end of the year and an example is provided below.
Example: I am a contractor that hires people to do painting for me on certain jobs because I don’t have time to do it all myself. I end up paying him $300 in June and another $400 in September. Would this trigger a 1099 for this person?
The answer is yes. This person is an independent contractor and I hire him for services when I need him. He controls his hours and workload. I paid him in excess of the $600 filing limit. I would be required to get a W-9 form from him and file the appropriate 1099 forms with the IRS.
How do you go about getting the information needed?
A form W-9 provides the company with the business or persons name, their social security number or EIN# and the type of business entity they are. This form is required for all vendors that fall into the categories of being eligible for a 1099. This includes individuals, sole proprietors, partnerships and LLC’s. Proper bookkeeping records will ensure that everyone that was paid over $600 for services will receive a 1099-Misc. at the end of the year.
If you use a program for your accounting, such as QuickBooks, be on the lookout for the accounts of repair and maintenance, subcontractors, and other service related accounts because the people that you pay within these accounts will be candidates for the 1099.
When are they due to the people? To the IRS?
Recipient copies are due to the businesses/individuals by January 31 and the IRS copies are due February 28 after the respective tax year.
What are the most common types of 1099s?
The most common is a 1099-Misc. which reports things such as non-employee compensation and rent. Other common forms are 1099-INT and 1099-DIV which are used to record interest and dividends over $10 for the filing year to individuals.
What if we don’t file on time/at all?
If late, up to 30 days is a penalty of $30 per form; 30-60 days is $60 per form; after August 1st is $100 per form and if not filed at all, $250 per form with no maximum penalty.