As we welcome in the New Year, let’s get a jump on our vendor 1099 forms, due at month-end 1/31/22 by knowing your filing requirements. Now is the time to gather the data in order to make this reporting timely and accurate, and also avoid substantial penalties for late filing.
IRS continues to use the 1099-NEC, which replaces form 1099-Misc in most cases, is due to the recipient and to the IRS on January 31, 2022.
Sample form:
Who are you required to send the new Form 1099-NEC? You are required to send Form 1099-NEC to vendors or sub-contractors you paid more than $600, during the normal course of business and that includes any individual, partnership, Limited Liability Company (LLC), Limited Partnership (LP), or Estate
Who are considered Vendors or Sub-Contractors? Essentially, this is a person or company that you paid, for services rendered, that isn’t your employee.
What are the exceptions? The list is lengthy, but the most common is that you don’t need to send a 1099 to:
Vendors operating as S or C-Corporations (you’ll find their status out when you get a W-9…see below)
LLCs or partnerships (ONLY if they are taxed as an S or C-Corp…again see the W-9 below)
Sellers of merchandise, freight, storage or similar items.
Payments of rent to or through real estate agents (typically property managers). However, keep in mind you need to issue a 1099 to a landlord you are paying rent, unless they meet another exception.
What about credit card payments and PayPal? The IRS allows taxpayers to exclude from Form 1099-MISC any payments you made by credit card, debit card, gift card, or third-party payment network such as PayPal. (These payments are being reported by the card issuers and third-party payment networks on Form 1099-K.)
Lawyers receive a 1099 every time. Although your lawyer may be ‘incorporated’, you are still required to send them a Form 1099 if you paid them more than $600.
The W-9 is your key form: One of the smartest procedures a business owner can implement is to request a W-9 from any vendor you expect to pay more than $600 before you pay them. Using this as a normal business practice will give you the vendor’s mailing information, Tax ID number, and also requires them to indicate if they are a corporation or not (saving you the headache of sending them a 1099 next year). You can download a W-9 here.
We strongly advise that you obtain new W-9 forms with updated vendor data and update that within your accounting systems or via your bookkeepers.
We suggest that you obtain an email address for your W-9 vendors.
This is easy to do within QuickBooks Online. This is easily instructed here:
Penalties for Failing to File – for 2021
Form 1099-NEC must be filed by 1/31/22. If you fail to do so, the penalty charged to the company varies from $50 to $550 per form:
The penalties range from $50-$550 per missed 1099 tax form, depending on how late the forms were submitted.
The maximum penalty is a total of $1,113,000* for small businesses. In all cases, the IRS considers you to be a small business if you’ve earned an average of $5 million or less in annual revenue for the past three tax years.
We are here to help you with IRS compliance and to ensure your Forms 1099 are processed by the new due date. Please contact your BrightBooks Bookkeeper if you have any questions, or need additional information.