It’s that time of year again! Time for business owners to issue 1099’s.
What is a 1099?
A 1099 is a tax form used to report earnings to the IRS. It helps the recipient know what their income was for the year and allows the IRS to have visibility into the earnings of individuals which may otherwise go unreported.
Who needs to issue them?
The IRS requires business owners to file 1099’s for contractors they’ve paid throughout the year. If you fail to file 1099’s for your contractors, the IRS can impose penalties and fees on you.
Who do I need to 1099?
In a nutshell, you need to issue a 1099 to anyone you paid a total of $600 or more in a calendar year. However, this only applies to payments made via cash, check, wire transfer or ACH. Here is an example:
- You paid a web design agency $1,200 via check this calendar year – you need to issue a 1099.
Who doesn’t need to be 1099’d?
There are a lot of exceptions to who gets 1099’d. Here are a few common exceptions:
- Any vendors paid via credit card or debit card are not required to be 1099’d. This is because the IRS requires payment processors to issue 1099-K’s. Payments to vendors via PayPal are also excluded from 1099’s, assuming they were paid via ‘Goods & Services’ rather than ‘Friends & Family’. .
- You paid a virtual assistant $700 via credit card this calendar year – you do not need to issue a 1099.
- Corporations generally do not need to be 1099’d. If the vendor you paid is a corporation, or an S-Corp, you are not required to issue a 1099. However, if the payment was for legal services, you still need to issue a 1099.
- You paid a web design agency $1,200 via check this calendar year, but they are registered as an S-Corp – you do not need to issue a 1099.
- You paid a lawyer $700 via check this calendar year, but they are registered as an S-Corp – you still need to issue a 1099.
- International Contactors do not need to be 1099’d as long as the work was performed outside the United States and the contractor is not a US taxpayer.
- You paid a virtual assistant based in the Philippines $1500 via wire transfer this calendar year – you do not need to issue a 1099.
What about office rent?
Yes – If you are renting an office and paying via check or equivalent, you need to issue a 1099.
This is a quick overview of the rules of 1099’s, but there are many more nuances not covered in this article. If you’re in doubt about issuing a 1099, always refer to the IRS’s direct guidance or talk to your CPA.