It’s January, which means it’s time to start thinking about tax season and what you need to do in preparation for it. If you worked with independent contractors or paid nonemployee compensation in 2019, you’ll need to file 1099 forms — and soon! With the deadline fast approaching on January 31, here’s everything you need to know about the 1099 form 2019.
What is the 1099 form 2019?
The 1099 form is comprised of a series of documents that the Internal Revenue Service (IRS) refers to as “information returns.” There are a number of different 1099 forms that report the various types of income an individual may receive throughout the year. The IRS requires businesses to report these payments to others.
Who should receive a 1099 form?
As a business owner, it’s important to know who should receive a 1099 form. Typically, independent contractors and freelancers fall into that realm. More specifically, the IRS requires that the following parties receive a 1099:
- Anyone paid at least $10 in royalties, dividends, interest, bond premiums, or broker payments in lieu of dividends or tax-exempt interest
- Anyone paid $600 or more as part of a liquidation
- Anyone paid at least $600 in rents, services, prizes or awards, other income payments, health care payments, crop insurance proceeds, for fish, or paid from a contract to an individual, partnership, or estate, fishing boat proceeds, and any payments to an attorney
- Direct sales of at least $5,000 to a buyer or reseller other than a permanent retail establishment
- Anyone who you withheld federal taxes from under backup withholding rules
Not everyone needs to receive a 1099. The following situations do not require this form:
- Payments that are not made in the course of your trade or business (personal payments)
- Payments to a corporation — except attorneys, fish payments, healthcare payments, and substitute payments in lieu of dividends
- Payments for merchandise, telephone, freight, storage, and similar items
- Payments of rent to real estate agents
- Payments to an employee for wages
- Travel allowances and expense reimbursements
- Cost of life insurance
- Payments to tax-exempt organizations
- Payments made through Gusto
- Payments made by a third party settlement organization (PSE) such as credit cards, debit cards, stored value cards (i.e. gift cards) and PayPal Business
- Scholarship of fellowship payments
- Canceled debt
Special Rules Apply
There are certain instances in which special rules apply. Deceased employee wages, prizes/awards paid to non-employees, foreign agriculture workers, and payments for medical research studies are all examples of situations that have their own rules. If you’ve encountered any of these instances, be sure to inform your tax preparer.
FAQs About Filing 1099 Form 2019
We often receive inquiries regarding who should and should not receive a 1099. Here are some of the answers to our most frequently asked questions.
Q: Do foreign contractors receive a 1099?
A: Foreign contractors do not need a 1099 as long as 1) they are not a US citizen and 2) the work was performed wholly outside the US. However, to verify these two facts, you must have the foreign contractor fill out form W-8BEN to keep for their records. If a foreign contractor is subject to US income tax, then form 1042 must be completed and filed with the IRS.
Q: Is a 1099 required for personal expenses?
A: Do not file a 1099 for personal expenses even if paid from a company account.
Q: What about rent payments or reimbursements for mileage?
A: Rent payments should get a 1099 but only for the rent portion of the payment. Reimbursements for mileage or expenses should not be reported on a 1099.
Q: Are 1099s based on the date of payment or date of check clearance?
A: 1099s are based on the dates the payment was made regardless of when the check cleared the bank.
Q: Can you request an extension?
A: A 30-day extension of time to file a 1099 (reporting NEC only) can be requested using IRS form 8809 (must meet 1 of 5 criteria as specified per box 7 of form 8809).
Remember, filing a 1099 is the law. For filing late, you could face penalties from $30 to $100 per form ($500,000 maximum per year), depending on how late they are. If you intentionally disregard the requirement to provide a correct 1099 form, it is subject to a minimum penalty of $250 per 1099, with no maximum.