Tax Forms

To 1099 or not to 1099?

/ Meghan Birmingham Vangeli / Leave a comment

If you are an independent contractor (aka “a freelancer”), chances are good that you have been the recipient of a Form 1099-NEC (or several) somewhere along the way. However, did you know that you may be required to file them too? Read on…

Why, you ask, would I need to file such a form?  Well, if you paid any person(s) $600 or more to provide services in the course of your business1 during 2023, you are required to prepare and file Form(s) 1099-NEC2 for them by January 31, 2024.

What do you mean “person”?  Well, a “person” in this circumstance is an individual, sole proprietor, partnership, or LLC that is NOT organized as a corporation.  So, if you paid Frank the Painter, Inc. (an S-Corporation) $700 to paint your rental house, you are off the hook and do not have to send a 1099 to his corporation.  But if you hired Gina Smith, an unincorporated sole proprietor, to repair your rental house plumbing for $600 or engaged Dewey, Cheatham & Howe, LP for $1,000 of legal consulting3 for your self-employed business, you will need to send Gina and/or DC&H a Form 1099-NEC.

What if I paid a guy I found on Craigslist $750 to buy a water heater for my rental?  Do I need to send that guy a 1099-NEC too?  Nope, 1099-NECs are only for service or labor payments, not purchases of goods or equipment. However, if you are issuing a Form 1099 to a contractor who supplied or installed materials and equipment incidental to the services they were providing, then you would include the entire amount of the payment on the Form 1099.

Okay, well what do I need to do to prepare these 1099-NECs?  The first thing is you need to get a Form W-9 from anybody you paid $600 or more during 2023.  (Really, it is better to get the W-9 from anyone your business hires before any work commences or money changes hands…but better late than never.)  This will give you the person’s legal name, current address, taxpayer identification number/social security number, and a confirmation of their federal tax classification (i.e., individual, partnership, corporation, etc.).  Then, if you plan to prepare and file the Forms 1099-NEC yourself, I would take a peek at the IRS Form 1099-NEC filing instructions for some guidance. You can either purchase the special paper 1099 and 1096 forms (no, you can’t download them from the IRS website), fill them out, and mail them in (only permitted if you have 10 or fewer forms to file), or you can use an online service to file them electronically (now required if you have more than 10 Forms 1099-NEC to file).4  Or you can always hire an accountant to help you… <ahem>

So what terrible thing is going to happen if I don’t file Forms 1099-NEC? To be blunt, you will pay penalties and wind up filing them anyway. The IRS hates this, and they have started hating it even more in recent years. If you are supposed to file Forms 1099 and you fail to do so, the IRS deems those Forms 1099 to be late. They then charge late penalties of anything from $60 to $630 per form depending on how late it is. That’s per Form 1099. So if you have 10 Forms 1099-NEC to file, you could be on the hook for up to $6,300 in penalties…and you’ll still have to file the forms. The penalties are severe, so it is really best to get these forms filed timely (that is, by January 31st).

Take a look at your tax records to determine if your business paid anybody $600 or more during 2023. If you did, gather the info and get those Forms 1099-NEC done as soon as possible!

  1. “Business” could mean a trade or business activity (like freelance musician or tax preparer) or a rental activity (like a landlord or an AirBnB host). ↩︎
  2. Yes, Form 1099-NEC. Not Form 1099-MISC. Go back and read my prior post on this. We haven’t been using Form 1099-MISC for “Nonemployee Compensation” since tax year 2019. If you’ve been using Form 1099-MISC for the past three years, well, you’re doing it wrong. ↩︎
  3. There are some special rules for legal fees. Consult your tax advisor if you may have this issue. ↩︎
  4. The IRS has recently unveiled its new online efiling service for information returns like Forms 1099. It’s called the “Information Returns Intake System” or IRIS. So cute…so floral…so, evidently, dysfunctional. Surprisingly (or not), every practitioner I have heard from has had problems with the system locking them out. So, for this year, I would investigate a different filing method (either paper, if eligible, or a commercial efiling service) for your Form 1099 filing needs. ↩︎

I provide this for information or entertainment purposes. It should not be construed as tax advice. Please consult your tax advisor to address your specific tax filing needs.

Introducing the new Form 1099…

/ Meghan Birmingham Vangeli / 2 Comments

Nope, not confusing at all.

The IRS has done it again! They invented a new form! <Insert light applause here>

Never mind that they can’t get tax returns from March processed…they spent all those long days in quarantine coming up with…more paperwork! Was this the result of a failed IRS drinking game? Did somebody lose a bet? We will never know. What we do know is that the IRS came up with a separate form to replace one box on a very commonly used form because that won’t confuse anybody.

I give you <drumroll please> Form 1099-NEC! This form will replace Form 1099-MISC, Box 7 – Nonemployee Compensation. So, if you made (or think you will be making) payments totaling $600 or more to any independent contractor during calendar year 2020, you’ll need to prepare and file Forms 1099-NEC and 1096 by February 1, 2021. (The deadline to file these forms is usually January 31st, but in 2021 January 31st falls on a Sunday). Do not use Form 1099-MISC, Box 3 – Other Income to report these payments because that is not playing by the IRS’s rules and they really hate that.

To read more about this form, check out this article in Forbes magazine. It gives a pretty good description of the form and who needs to file it. The article was written by my new tax hero(ine), Kelly Phillips Erb, aka “TaxGirl”. Check out her blog here and her podcast here. For additional instructions, you can also consult the IRS’s website for information on Form 1099-NEC and Form 1096.

If you believe you will need to file Form 1099-NEC (or any other Form 1099 and Form 1096), you can order the forms *FOR FREE* from the IRS. Click here to place your order. Do it now because, in a plot twist that no one saw coming, it turns out that the IRS is a little behind on order fulfillment. Hard to believe, I know. The forms they will (eventually) send you are the tractor paper/carbon copy kind that would have probably been useful in like 1987. But they will work if you only have a few forms to fill out and don’t mind writing them by hand. If you need the kind that will go through your laser printer, you will have to purchase those elsewhere (online, Office Depot, etc).

Pro tip: spring for the 1099-specific envelopes at Office Depot. It makes your life easier and looks a whole lot more professional.

Stay tuned!

The fine print: This blog post is for educational and entertainment purposes only and is not intended as a substitute for tax advice. Please consult your tax advisor for guidance on your specific situation.