Form 1099 and W-9 Reporting Requirements

By Steve Ritchie, CPA

 

Due to increased enforcement and related assessment of penalties for failing to timely and accurately file Forms 1099, we felt it was important to share the following requirement and due date information specifically associated with Forms 1099.

Important Form 1099 Due Dates

January 31, 2020

  • Form 1099-MISC information returns, used to report Nonemployee Compensation (NEC) payments, are due. This form must be filed by all businesses that made payments for services to noncorporate recipients or law firms (regardless of their entity type) in excess of $600.00 during the calendar year.

February 28, 2020

All other Forms 1099 information returns are due. These include the more common Form 1099-MISC used to report rent payments, Form 1099-INT used to report interest payments, and any other type of 1099s that may be required. Unlike nonemployee compensation, these information returns do not have a minimum payment amount.

Penalties for Noncompliance

Failure to file timely will result in the following penalties:

  • $50 per 1099, if you file within 30 days of the due date; maximum penalty of $191,000
  • $100 per 1099, if you file more than 30 days after the due date but by August 1; maximum penalty of $547,000
  • $270 per 1099, if you file after August 1; maximum penalty of $1,091,500

Important IRS Form W-9 Information

Businesses are to use IRS Form W-9, Request for Taxpayer Identification Number and Certification, to obtain information from vendors they pay as independent contractors, landlords, creditors, etc. Businesses use the name, address, and Social Security number or tax identification number that vendors provide on Form W-9 to complete the Form 1099. Neither the sender nor the recipient should send a copy to the IRS.

Businesses that hire independent contractors do not withhold income tax or pay Medicare or Social Security taxes for their independent contractors, as they do for their employees. Instead, contractors are responsible for these obligations. However, the IRS still wants to know how much these contractors received, to make sure they pay the taxes they owe.

Form W-9 asks for the independent contractor’s name, business name (if different), business entity type (sole proprietorship, partnership, C Corporation, S Corporation, trust/estate, limited liability company, or “other”), and the business tax identification number (or Social Security number for sole proprietors who don’t use a separate tax ID number).

Form W-9 also asks the person filling it out to certify that they are not subject to backup withholding. Most taxpayers are not, but if they are, the business will need to withhold income tax from that contractor’s pay at a flat rate of 24% (for tax years 2018-2025) and remit it to the IRS.

Because Form W-9 requires listing a tax ID or Social Security number, both the business and the contractor/vendor must guard it carefully during transmission and after receipt, to protect against identity theft.

What Should You Do Now?

Below are things you can do right now to ensure compliance with the requirements outlined above.

  • Review your vendor payments and begin to gather any missing Forms W-9 for all vendors to whom you paid or expect to pay more than $600 of services in 2019.
  • Gather these forms for any entity to whom your company paid rent or other forms of income (interest, dividends, capital gains, etc.).
  • Collect these forms from corporate entities, as this will be your proof of their corporate status (and your corresponding relief from issuing them a Form 1099.) Common recipients are your landlords, independent consultants (NOT your employees), law firms, and shareholders receiving dividends or interest payments.
  • Because Form 1099 amounts are based on payments made rather than expenses incurred, establish a payment cutoff date early enough in December to allow you to prepare 1099 information in a timely manner.

 

Photo by Andrew Magill (License)

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