Do you need to issue 1099s? Due 01/31
Did you hire a website designer, VA or a business coach this year? Well, your business may be required to issue a 1099. New for tax year 2020 is the form 1099-NEC (Non-Employee Compensation) replacing 1099-MISC box 7 NEC.
Each January the IRS requires that each taxpayer who has made business payments of $600 or more to a business, individual, subcontractor, independent contractor, or vendor who is not considered an employee, must generally prepare Form 1099 (NEC) Non-Employee Compensation and Form 1096 Annual Summary and Transmittal. Copies of this form must be provided to the worker and the IRS. (Check your state rules as well.)
We’ll go over the most common reasons you may be required to send a 1099-NEC below.
If the following four conditions are met, you must generally report a payment as NEC.
You made the payment to someone who is not your employee.
You made the payment for services in the course of your trade or business.
You made the payment to an individual, partnership, estate, or, in some cases, a corporation.
You made payments to the payee of at least $600 during the year.
The filing deadline for both forms is generally January 31.
Failure to issue a Form 1099 and file Form 1096 can result in penalties, potential disallowance of deductions for those amounts paid and tax withholding requirements that you'll be on the hook for. Ouch! As such we strongly encourage you to comply with these filing requirements.
The information needed to file form 1099-NEC can be obtained by having the vendor complete Form W-9. It is best practice to have this form completed BEFORE paying your vendor. When backup withholding applies, it requires a payer (you) to withhold tax from payments not otherwise subject to withholding.
PLEASE NOTE: You are typically not required to send a Form 1099-NEC to S-Corporations, C-Corporations or any vendor you have paid via Credit Card or PayPal for Business. (CC & PayPal already report!)
So make it a standard practice to get a W-9 before you pay anyone via check, cash, cash-apps, venmo, etc.
There are of course many rules and exceptions and still the old 1099-MISC that you may need to file for royalties or rent paid during the course of business.
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**If you need help filing your forms, we have preferred partners we can recommend to assist you.