In case you hadn’t heard – the rules for when you need to file a Form1099 are changing. But forget about the future. Are you doing it right, right now?
Form 1099-MISC is the “catch-all” of the returns companies have to file. Unlike a W-2 for wages, or a 1099-INT for interest income paid, the 1099-MISC covers a variety of income you must report to the recipient (and the IRS). Most people think of the 1099-MISC as the form that you report any compensation a non-employee, such as a contractor, or for any non-corporation (i.e. a partnership or sole proprietor) to whom you have paid >$600 for their services (not for any good purchased). While this is true, this is not all.
• If you pay rent over $600 for the year, you need to file a 1099-MISC. This is not limited to just facilities rental, but also includes machine rentals.
• If you pay legal fees, you need to file a 1099-MISC. This applies regardless of whether or not the legal services were provided by a corporation or a non-corporation. If you paid legal fees – you need to file a 1099.
• And the one we see missed the most – if you pay your accountant more than $600, you better believe that you should be filing a form 1099-MISC for them.
The most commonly mistaken income that people think should get a 1099, but does not, is scholarship income. Unless the recipient is receiving that scholarship in exchange for their services (i.e. as a teachers aid, or researcher), the scholarship is not generally reported to the IRS.
The deadline to file Form 1099 and the cover page Form 1096 (similar to a W-3) is February 28 (though generally you need to provide it to the recipient by January 31), regardless of your fiscal year. And the penalties for late filing can be severe – $15 PER RETURN if they are filed <30 days late, $30 per return for >30 and < 6 months, and $50 per return anytime thereafter or for forms not filed.
And for those of you who read the first line about the rules changing – we have an upcoming post about the new changes, so stay tuned…
Disclaimer – the above is not intended to be a comprehensive overview of the tax forms. It is only a summary. Should you have any questions, or would like further advice for your specific situation be sure to contact your tax professional.
Katie Thomas, CPA