As we approach year-end 2022, let’s get a jump on our vendor 1099 forms, due at January month-end 1/31/2023 by knowing your filing requirements:
Now is the time to gather the data in order to make this reporting timely and accurate and avoid substantial penalties for late filing.
IRS continues to use the 1099-NEC, which replaces form 1099-Misc in most cases. Form 1099-NEC is due to the recipient and to the IRS on January 31, 2023.
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 they 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 highly recommend that you obtain an email address for your W-9 vendors because right through QuickBooks Online your contractor can be invited to submit their own tax information!
Please see the link below for easy-to-follow instructions on How to Invite Your Contractors via QBO!
Penalties for Failing to File – for 2022
Form 1099-NEC must be filed by 1/31/23. If you fail to do so the penalties range from $50-$580 per missed 1099 tax form, depending on how late the forms were submitted.
Penalty per Form | Length of Delay |
$50 | More than 30 days late |
$110 | More than 30 days late but before August 1st, 2023 |
$290 | Filing on or After August 1st, 2023 |
$580 | Intentionally neglecting to file |
The maximum penalty is a total of $1,177,500* 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 Form 1099 is processed by the new due date. Please note, for clients with their home office as Shelton (previously Trumbull), the majority of 1099 forms and W2s will be prepared and billed via BrightBooks bookkeepers. Please contact your Innovative CPA Group Accountant or BrightBooks Bookkeeper, if you have any questions or need additional information.