What Small Businesses Need to Know About Issuing 1099s

The IRS has made timely 1099 reporting one of its top priorities with increased enforcement and larger penalties. Here’s what you need to know about issuing 1099s to your independent contractors to stay off their radar.

When Do You Need to Issue a 1099-MISC?

You must issue a 1099-MISC to any vendor or contractor your business pays $600 or more during the year. This could be from a one-off project or from an ongoing relationship. Payments to individuals, partnerships and LLCs are generally reportable on Form 1099-MISC.

When Do You Not Need to Issue a 1099-MISC?

You usually do not need to issue a 1099-MISC for payments to a corporation or an LLC taxed as a corporation. In addition, you should not report payments on 1099-MISC when they are reportable on Form 1099-K.

Form 1099-K is used to report payments with credit cards and over third-party electronic payment networks. The payment processor is responsible for reporting these payments. Issuing a 1099-MISC for these payments may result in your contractor’s income being double-reported.

What Is the Deadline to File 1099-MISC?

You must send a 1099-MISC to your contractors by January 31 of each year. You must send a copy to the IRS by the same date — you no longer have additional time to file with the IRS as in the past. These changes went into effect during the 2017 filing season for the 2016 tax year.

What Are the Penalties for Failing to File a 1099-MISC?

If you file an information return late, including 1099-MISC, or if you never send one at all, you pay a per-return penalty. Per-return means if you have 100 contractors to whom you should have issued a 1099-MISC, you pay the penalty 100 times. The penalties are as follows.

  • No more than 30 days late: $50 per return.
  • By August 1: $100 per return.
  • Later or not at all: $260 per return.
  • Intentional disregard (knew you should have filed but didn’t): $530 per return.
The IRS has also taken action against businesses who fail to issue 1099 forms for failing to remit withholding taxes. The theory is that if you didn’t issue a 1099, you didn’t get the payee’s tax identification number. When you don’t get a payee’s tax identification number, you’re required to withhold 28 percent through 2017 and 24 percent under the new tax law starting in 2018. The IRS can collect this amount from you if you can’t show the payee paid taxes on it.

As always, double check with your accountant for the exact requirements that apply to your specific situation and to make sure you do everything correctly and on time.