Ins and Outs of Processing 1099's
Renee Daggett • December 14, 2022
You are required to provide a 1099 showing the amount you paid if you pay someone more than $600 in a calendar year for services (not material or product). Here are some facts you need to know.
Businesses have until January 31st to provide 1099 forms to recipients.
AdminBooks Tips:
- Collect a W-9 at the time of payment so you know if the business is a sole proprietorship, LLC or Corporation.
If it is a corporation, then no 1099 is required.
- A 1096 form is required when you file a tax return by paper. It is not required if you e-file.
- When the person you paid uses their Social Security number as their tax ID, then their full name must be on the first line of the 1099.
If the business name is listed by mistake, then you will receive a letter from the IRS saying the name and ID do not match. Then the IRS will require you to withold money from future checks.
- When you pay a subcontractor for expenses incurred, do NOT include that amount in box 7.
- If you receive a 1099 from someone with reimbursed expenses, like travel or postage, show the full amount of income on your tax return. Then, show the full amount of expenses and it will net out the same. If you lower the 1099 amount on your return to “correct” it, that will trigger an audit.
- If you hire a subcontractor, be sure that the state won’t deem the person as an employee .
A few indications to strengthen your case are:
- You have a contract agreement between parties.
- The subcontractor invoices the business.
- The subcontractor has a business license. The business does not tell the contractor WHEN to perform the work or HOW to do their job. The subcontractor uses their own equipment and materials.
- The subcontractor is available to be hired by other companies.
- Penalty fees if you miss the deadline:
- Up to 30 days late = $50
- 31 days late through August 1 = $110
- After August 1 or Not Filed = $290
- Intentional Disregard = $580
- Extension on E-filing - Form 8809: you will receive an automatic 30 day extension as long as you request prior to the deadline of January 31st. You can find the form on the IRS website and either fax or mail it in.
- Fax: 1-877-477-0572
- Mail: Internal Revenue Service, Attn: Extension of Time Coordinator, 240 Murall Drive, Mail Stop 4360, Kearneysville, WV 25430
- Extension on Recipient Delivery: There is no specific form; you will need to send a letter to the IRS. It is not an automatic extension. If granted, you will be provided with an extra 30 days for delivery; however, if not granted, you will still receive a 10-15 day grace period.
AVOID GETTING AN AUDIT!
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