Debating if your business needs to file form 1099-NEC or 1099-MISC? Let’s discuss the requirements of each.
Reasons to File Form 1099-NEC
If you use independent contractors to perform services for your business – the answer is yes for form 1099-NEC. For each contractor that you pay $600 or more for the year, you are required to issue the worker and the IRS a Form 1099-NEC. And be sure to issue that form no later than January 31, 2022 for 2021 payments.
Generally, a 1099-NEC is not required to be issued if the independent contractor or service provider is a corporation. However, payments to attorneys for legal fees of $600 or more must be reported, even if the attorney operates as a corporation.
Information You’ll Need to Fill Out 1099-NEC
To properly complete the form, you’ll need the individual’s name and tax identification number. But it isn’t unusual to, say, hire a repairman early in the year to whom you pay less than $600, and then use the repairman’s services again later and have the total for the year exceed the $600 limit.
Did you overlook getting all the appropriate information needed to file your contractor’s 1099-NEC forms? It’s always an extra step and inconvenient getting information after-the-fact. We recommend the practice of having all workers complete and sign the IRS Form W-9 the first time you use their services. Having properly completed and signed Form W-9s for all independent contractors and service providers eliminates any oversights. Not to mention, this paperwork protects you against associated IRS penalties and conflicts.
We recommend potential independent contractors complete Form W-9 prior to you engaging in business with them. The form can either be printed out or filled onscreen on the IRS’ website and then printed out. A Spanish-language version is also available. The W-9 is for your use only and is not submitted to the IRS.
To avoid a penalty, the government’s copies of the 1099-NECs must be sent to the IRS by January 31, 2022, along with transmittal Form 1096. They must be submitted on magnetic media or on optically scannable forms. However, any business that files more than 250 information returns (such as 1099s, W-2s, and 1095s) in a calendar year is required to file the forms electronically. Please note: the 250-return requirement may be lowered to 100 if proposed regulations are finalized by the IRS. However, that change wouldn’t be effective until 2023.
Reasons to File Form 1099-MISC
In some cases, for payments of $600 or more, you may need to file Form 1099-MISC. Form 1099-MISC is used to report rents, certain prizes and awards. Also to report income your business paid other than that includible on Form 1099-NEC or payable to employees. Form 1099-MISC must be provided to the income recipient by January 31, 2022. It must be provided to the IRS by February 28, 2022, along with transmittal Form 1096.
This firm provides IRS Form 1099 preparation services. If you need assistance or have questions, please give this office a call.
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