Article: 1099’s – What Are The Rules?

| January 25, 2018 | ,,

1099 Rules for Business Owners in January 2018

Over the past few years there have been a number of changes and updates regarding the reporting rules for the mysterious 1099-Misc Forms.  We say “mysterious” because many business owners simply guess as to what the rules are and oftentimes get exasperated and just give up choosing to file nothing at all.  This can be a dangerous result as the penalties can add up quickly be sure to work with a professional accounting firm when doing your tax preparation.

First, the general rule is that business owners must issue a Form 1099-MISC to each person to whom you have paid at least $600 in rents, services (including parts and materials), prizes and awards, or other income payments. You don’t need to issue 1099s for payment made for personal purposes. You are required to issue 1099 MISC reports only for payments you made in the course of your trade or business.  If your purchase was tangible products only, then a 1099 MISC form is not necessary.

The penalties for not doing so can vary from $50 to $260 per form, depending on how long past the deadline the company issues the form. If a business intentionally disregards the requirement to provide a correct payee statement, it is subject to a minimum penalty of $260 per statement, with no maximum.  Bottom line, the penalties can add up!!

Here are the basics you should know for your tax preparation.

  • Who are you required to send a Form 1099?
    You are required to send Form 1099 to vendors or sub-contractors during the normal course of business you paid more than $600 for services or rents, 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 you have paid for services that isn’t your employee.
  • What are the exceptions?
    The list is fairly lengthy, but the most common is that you don’t need to send a 1099 to:

    • Vendors operating as S Corporation or C-Corporations or an LLC taxed as an S or C-Corporation  (you’ll find their status out when you get a W-9…see 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.
  • Don’t worry 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 get the short end of the stick.
    Ironically, the government doesn’t trust that lawyers will report all of their income, so even if your lawyer is ‘incorporated’, you are still required to send them a Form 1099 if you paid them more than $600.
  • The W-9 is your “best friend”.
    Some of you may be frustrated that you don’t have the information you NEED to issue the 1099.  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 require 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 from
  • The procedure.
    Regrettably, you CANNOT simply go to and download a bunch of 1099 Forms and send them out to your vendors before the deadline.  The form is “pre-printed” in triplicate by the IRS.  Thus, you have to order the Forms from the IRS, online or pick them up at office supply store. Our office can provide the required forms.
  • Deadline to Payees.
    Taxpayers are required to issue and mail out all Form 1099s to vendors by January 31st.  There are software programs available to aid with the task and even distribute the 1099 forms electronically.
  • Deadline to IRS.
    Next, don’t forget you have to compile all of your 1099MISC forms for subcontractors (amounts reported in box 7 as non-employee compensation) and submit them to the IRS with a Form 1096 by January 31st as well.  All other forms 1099MISC and other 1099 series forms retain the old due date to the IRS of February 28.  And if you are filing these other 1099MISC forms electronically, the due date is March 31.  REMBEMBER this special rule:  all 1099MISC forms with entries in Box 7 for non-employee compensation are due to the IRS by January 31.  Also, depending on state law, you may have to file the 1099-MISC with the state.
  • What about foreign workers?
    Also, if you hire a non-U.S. citizen who performs any work inside the United States, there may be very special rules.  The correct reporting is dependent on many factors, such as the length of time the worker was in the US, the worker’s visa status, and the amounts you paid.  There could be US and the other country’s treaty provisions involved.   For this situation, you need to get appropriate support to handle the transaction appropriately.  Maybe a 1099MISC is appropriate, but there are potential reporting traps including 30% federal income tax withholding.   Ideally you should ask questions before you make any payment to an international subcontractor.  If you have not yet sought advice for this situation, please do so right away.  It is your responsibility to verify that the worker (1) is indeed a non-U.S. citizen, and (2) performed all work inside or outside the United States. Appropriate documentation from the worker is the key to the correct treatment and reporting for this type of vendor payment.
  • Procedures for 2018.
    Moving forward this year, make sure to get a Form W-9 from all your vendors before they can get paid.  This will save you a lot of headaches next January so you don’t have to track down their mailing addresses or EINs.

Don’t ignore the 1099 or the process and get with your accountant to make sure to finish up the process before the end of January.  This could save you major penalties if you get caught not filing the Forms and you can show reasonable cause for your delays.

Get a free consultation from us Give our office a call at 412-826-8600 if you have any questions regarding these filing requirements or other tax questions. We know this can be overwhelming use our experts and get a free consultation today.