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Form 1099 Filing Requirements

Rödl & Partner Tax Matters Vol 2015-8, republished in July 2024

All companies that issue payments must determine whether information return reporting on the Form 1099 series is required. This Rödl Tax Matters will explain the filing requirements pertaining to Form(s) 1099 and specifically Forms 1099-MISC and NEC.

The Form 1099 series is used to report various types of income other than wages, salaries and tips (for which Form W-2 is used instead). Reporting is generally required for all payments to non-employees and reporting may be required for certain types of employee payments excludable from wages. Payments made to non-U.S. persons should also be evaluated for withholding and / or reporting requirements, but the information contained herein is primarily related to payments made to U.S. persons in the course of your trade or business. Form 1099 filing requirements may apply based on the type of payment or on the type of payee. For applicable payments, the company issuing the payment is required to provide Form 1099 annually to the recipient of the payment (payees). Common payments required to be reported (payments of $600 or more) include services, rents, income payments, awards and prizes, and medical and health care payments. . Form 1099-NEC is used to report payments of at least $600 for services to a non-employee or payments to an attorney. The remainder is reported on Form 1099-MISC.

Examples of Reportable Payments

Exceptions to Reporting Requirements

The law provides various thresholds for which Form 1099 reporting is not required. For example, no filing is required for payees who receive less than $600 from the payer during the applicable year. In addition, information returns are generally not required for:

Payments to a corporation; but required for payments to a corporation for legal, medical and health care services, federal executive agency payments, and certain other items.
Payments to exempt organizations, including units of government
Payments by a broker to his/her customer
Payments of bills for merchandise, telegrams, telephone, freight, storage and similar charges
Payments of rent made to real estate agents
Salaries and profits paid or distributed by a partnership to the individual partners
Payments of commissions to general agents by fire insurance companies or other companies insuring property
Payments made by merchant or credit card reportable by the payment settlement entity on Form 1099-K

Payments for services not specifically excluded are reportable on an information return.

Payments to Partnerships, LLCs, and Other Entities

Payees for whom payments must be reported include individuals, partnership entities (LP, LLC, LLP, etc.) estates, trusts, and medical and legal service providers. Reporting for payments to LLCs depends on how they have elected to be taxed. There is a form the LLC can provide if they have elected to be taxed as a corporation, but there is no real disadvantage to issuing a 1099 if there is uncertainty as to whether one is required. While sending 1099s unnecessarily carries a small cost of preparation and mailing, the fine for NOT sending one when required can be large.

Form W-9

You should obtain the appropriate vendor information before any payments are made. Form W-9, Request for Taxpayer Identification Number and Certification, or a substitute, should be used to collect the owner’s name (if sole proprietor), legal business name, mailing address, and taxpayer identification number. We suggest obtaining the W-9 as part of your new vendor acceptance procedures and a best practice is to obtain the Form W-9 in all cases. Many companies make their W-9 available on their web site. You should also have procedures in place or reports that can be generated from your accounting software to determine the annual payments made and the reportable transactions for which you will need to prepare and file the Form 1099 and Form 1096, Annual Summary and Transmittal of U.S. Information Returns.

Under the backup withholding provisions, if the vendor fails to supply an identification number, the payer must withhold 24% and report these amounts to the IRS annually with Form 945. The person or entity receiving the payment will claim the amount withheld as a credit on their income tax return; the amounts are not returned by the payer.

When and How to File

Each payer must complete a Form 1099 for each reportable transaction. Four copies are prepared: one for the payer, one for the payee, one for the IRS, and one for the state tax department, if required. Payers who file 250 or more Form 1099 reports must file all of them electronically with the IRS. This requirement applies separately to each 1099 type (e.g. 1099-NEC, 1099-INT, etc.) Filers of less than 250 returns may file electronically or on paper. If paper copies are filed, the IRS also requires the payer to submit a copy of Form 1096, which is a summary of the information forms being sent to the IRS. Copy A of Form 1099 must be filed with the IRS by the end of February (or by March 31 if filed electronically) immediately following the year for which the income items or other proceeds are paid. Exception: Form 1099-NEC must be filed on or before January 31st either electronically or on paper. Copy B of Form 1099 must be sent to the recipient (payees) by January 31st of the following year.

Information Return Penalties

Taxpayers should also be aware that there are penalties for failure to file a correct information return. The amount of the penalty is based on when the correct information return is filed. The penalty ranges from $60-$310 per information return with a maximum penalty of $630,500 ($220,500 for small businesses) to $3,783,000 per year ($1,261,000 for small businesses). The minimum penalty for each failure due to intentional disregard is at least $630 per return with no maximum penalty.

If you have any questions, please contact your Rödl & Partner representative.

This publication contains general information and is not intended to be comprehensive or to provide legal, tax or other professional advice or services. This publication is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Consult your advisor.

We have made reasonable efforts to ensure the accuracy of the information contained in this publication, however this cannot be guaranteed. Neither Rödl Langford de Kock LP nor any of its subsidiaries nor any affiliate thereof or other related entity shall have any liability to any person or entity which relies on the information contained in this publication, including incidental or consequential damages arising from errors or omissions. Any such reliance is solely at user's risk.

Any tax and/or accounting advice contained herein is based on our understanding of the facts, assumptions we have been asked to make, and on the tax laws and/or accounting principles in effect as of the date of this advice. No assurance is given that the conclusions would be the same if the facts or assumptions change, or are not as we understand them, or that the tax laws and/or accounting principles will not change subsequent to the issuance of these conclusions. In addition, we do not undertake any continuing obligation to advise on future changes in the tax laws and/or accounting principles, or of the impact on the conclusions herein.

No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Rödl Langford de Kock LP.

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Elisa Fay

CPA

Managing Partner Rödl National Tax

+1 404 525 2600

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