1099 Reporting Guidelines

January 31, 2010 is the deadline to furnish Form 1099-MISC to recipients.  The 1099-MISC form is used to report more than two dozen types of payments that must be claimed as income by the recipient. This category includes payments made by businesses as fees to attorneys, service providers, and freelancers. Other types of payments covered by the 1099-MISC include reimbursement for auto expenses, awards and bonuses, commissions, prizes, and vacation allowances for non-employees.

A payer of rents and royalties must also file this tax document.

1099’s are issued to individuals, partnerships, and single member LLC’s.  Corporations are generally not issued 1099-MISC unless the payments are for attorney fees.  The IRS can charge a $50 penalty for not issuing a 1099.

The most common 1099’s that need to be completed by business owners are for the payment of rent and nonemployee compensation.  Enter in Box 1 amounts of $600 or more for all types of rents paid.  Enter in Box 7 nonemployee compensation of $600 or more. Include fees, commissions, prizes, and awards for services performed for your business by an individual who is not an employee but an independent contractor.

An independent contractor is an individual, a business owner, or a company that you contracted with to do a specific project or consulting. The contractor provided a specialized type of expertise to you either intermittently or maybe just once during the year.  This was a person who required no training from you, was not under your control, and may have used their own equipment.  You didn't issue them a regular paycheck, withhold or pay any taxes, or provide any benefits.

A few examples of some likely independent contractors:

  • Attorneys
  • Accountants
  • Bookkeeping Services
  • Graphic Designers
  • Architects
  • Computer Maintenance and Repair Services
  • Contractors
  • Cleaning Services
  • Consultants of various types: marketing, human resource, management, etc.

The IRS and your State Department of Labor have very specific rules regarding Independent Contractors vs. Employees.  If you incorrectly classify an employee as an independent contractor, you can be held liable for employment taxes for that worker plus penalties and interest.

To accurately complete the 1099, you will need the recipient name, address, and tax identification number or social security number.  All independent contractors should be given Form W-9 (Request for Taxpayer Identification and Certification) to complete prior to engaging their services and payment.  Having this form filled out up front will eliminate any year-end tracking down of subcontractors.

All 1099’s must be mailed to the IRS with Form 1096 by February 28, 2010.  The 1096 is the necessary "cover sheet" summary you have to send to the IRS along with the 1099 copies.  Reporting by state can vary, so check your state requirements.  Connecticut requires Form CT-1096 be filed with the state copy of the 1099’s attached.

About the author:

Karen Tedford,

28 Comments on "1099 Reporting Guidelines"

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  5. Stephen Pedneault
    Jan 24th, 2010

    Form 1099 can also be used to report the proceeds of thefts, such as someone who embezzles funds. Care should be considered before completing Form 1099 in these circumstances, as once the form has been filed, is will likely be interpreted that the funds were deemed non-employment compensation paid to the individual (the designed use of Form 1099-Misc) and could become a barrier for recovery from the suspect. If reported to the IRS as “compensation”, one would not expect repayment or recovery of “compensation.” Form 1099 is, however, a good tool to consider as a last resort or at the end of an issue to alert the IRS of unreported taxable income.

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