by Karen Stern
Businesses that hire independent contractors, freelancers or vendors and pay them more than $600 in business-related payments for the year will need to prepare and issue an IRS Form 1099 for the 2020 tax season.
The IRS recently released a draft of a new form, Form 1099-NEC, for non-employee compensation only, which is due to recipients and the IRS by January 31.
Form 1099-MISC most commonly is used to report royalties, rent, other income, medical and health care payments. These forms are due to recipients by January 31 and should be filed with the IRS by February 28.
Starting with tax year 2020, any business with 100 or more forms must electronically file for both 1099-MISC and 1099-NEC.
If you need to issue and file 1099’s for the 2020 tax season, below are some items to keep in mind:
- Requirements. 1099 forms only need to be sent for services provided for a business, not for goods or merchandise. 1099’s do not need to be sent for non-business, personal services. If a company paid for services using a credit card or third-party payment network, the rules for 1099-K’s are applicable for reporting.
- W9s. The IRS requires Form W-9, Request for Taxpayer Identification Number (TIN) and Certification to be used when collecting the required tax identification information from your vendors and independent contractors. You should request updated W-9s annually to ensure you have the most updated information.
- TIN matching. Correct W-9’s are the key to correct 1099’s. To avoid possible matching notices with the IRS, it’s important to ensure that the official name on the W-9 that corresponds with the TIN matches exactly what is on file with the IRS.
Preparing and filing 1099’s can be tedious, and many companies are beginning to outsource this function. If you have any questions about 1099 filing requirements or need assistance with electronic filing, please contact Karen Stern, Partner in Charge, Entrepreneurial Services Group at Brown Smith Wallace, at 314.983.1204 or email@example.com.
Karen Stern, CPA, (firstname.lastname@example.org), partner in charge, Brown Smith Wallace Entrepreneurial Services Group, provides tax and accounting services for companies ranging from start-ups to $20 million in revenue.