Updated: Jul 21
Over the past few years, there have been several changes and updates regarding the reporting rules for 1099 forms. In 2020, the IRS released a new Form called 1099-NEC Non-Employee Compensation. Additionally, they changed the purpose of the 1099-MISC.
1099-NEC. Businesses will now file Form 1099-NEC for each person to whom they paid at least $600 during the year. This payment would have been for services performed by an individual or company who isn't the payor's employee.
1099-MISC. Other payments businesses make to vendors totaling $600 or more for things such as rent, prizes, and awards, and other income payments are reported on Form 1099-Misc.
Generally, business owners MUST issue a Form 1099-NEC to each individual or business to whom they have paid at least $600 in services (including parts and materials), rents, prizes and awards, or other income payments. However, you are only required to issue Form 1099-NEC's for payments you made due to your trade or business. This applies to vendors or sub-contractors who are sole proprietors, Partnerships, Limited Liability Companies (LLC), Limited Partnerships (LP), and Estates. All lawyers for who you paid $600 or more MUST receive a Form 1099, regardless of their business entity. Additionally, any non-US-citizen vendors who perform any work within the United States MUST receive a 1099-NEC.
You should NOT send 1099 Forms to any Vendors operating as S or C-Corporations or LLCs or partnerships that have elected S or C-Corp status, which the IRS has accepted. Rent payments for rent made through or to property managers or real estate agents should not receive 1099's, as well as any sellers of merchandise, storage, freight, and similar items. Any non-US citizens who perform all of their work outside of the United States do NOT get a Form 1099. On another note, you WILL need to issue a 1099 to a landlord you are paying rent unless they meet another exception as listed above.
If you pay vendors through PayPal or by credit card, you do NOT need to issue a Form 1099, as these institutions report payments on a 1099-K. This DOES NOT apply to payments made via the "Friends and Family" option on PayPal, as those transactions WILL NOT be reported on a 1099-K and must be reported by the paying company. Additionally, Venmo and Zelle DO NOT file 1099-K's, so it is the business owner's responsibility to issue the proper 1099 when paying vendors via Venmo or Zelle.
It is essential to have vendors fill out, sign, and send back W-9 Forms before they start work for you, especially if you expect to pay them $600 or more. This will save you the headache of having to obtain one last minute when you are filing your 1099's. For any vendors who are non-US citizens and perform all of their work outside of the US, you should have them fill out and sign a Form W-8BEN that you can keep for your records. Additionally, the penalties for not filing 1099s can be hefty and add up quickly. They vary from $50 to $110 per form, depending on how long past the deadline they are issued. Thus, if a business intentionally disregards the requirement to provide a correct payee form, it is subject to a minimum penalty of $550 per form, with no maximum.
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