January is a busy month for tax filings. The fourth quarterly installment of individual income tax estimates are due, payroll tax returns (including W-2’s) are due and 1099’s are due as well.
1099’s are those returns that report payments made by you to others, which are not reported on W-2’s. These payments include dividends, patronage dividends, royalties or interest aggregating $10 or more paid to any person or business during the calendar year. They also include payments made by you during such year, in the course of business, to another person or company in the form of compensation (other than W-2 wages), rents, commissions, premiums, prizes or awards, fees or other amounts of $600 or more. 1099’s are generally not required for payments made to corporations. Note that even if your business uses a fiscal year, 1099’s are filed on a calendar year basis. THERE ARE NOW SUBSTANTIAL PENALTIES FOR NONFILING.
What does this mean to you as a business person? This means that you will have to issue Forms 1099 for dividends, interest, rents, commissions, management fees, accountant’s fees, attorney’s fees, janitorial services, contract labor and most other expenses where the amount paid to a particular qualifying recipient for services equals or exceeds $600.
There are several types of 1099’s used in reporting. The ones you are most likely to use are:
1099-DIV – Used to report gross dividends and other distributions on stock aggregating $10 or more in a calendar year. This also includes non-taxable distributions, capital gains and liquidating dividends.
1099-INT – Used to report interest of $10 or more paid to another person. Generally, interest paid by individuals (outside of a business) is not included in the definition of interest on which reporting is required.
1099-R – Used to report distributions from qualified retirement plans.
1099-MISC – Used to report royalties of $10 or more and rents, non-employee compensation and all other fixed or determinable payments of $600 or more for services which are not reported elsewhere. You do not need to issue 1099’s for rent paid by a tenant to a real estate agent or for non-employee compensation paid to a corporation. Limited Liability companies are generally not corporations and should be issued 1099’s.
Non-employee compensation includes fees, commissions, prizes, awards or other forms of compensation for services rendered for your business by an individual or partnership which is not your employee. Examples of payments in this category are:
- Fees paid for professional services, such as accountants, attorneys, engineers and architects.
- Fees paid by one professional to another, such as fee-splitting or referral fees.
- Fees paid for janitorial services, if not paid to an employee.
- A fee paid to a non-employee and travel reimbursement for which the non-employee did not account to the payer, if the fee and reimbursement together equal or exceed $600.
- Payments to non-employee entertainers for services.
All taxpayers engaged in a business which makes payments to an attorney must issue a Form 1099-MISC for the total amount paid, if that amount is equal to or greater than $600, even if the law firm is a corporation.
In addition, if you receive any interest income of $600 or more on an obligation secured by real property, in the course of your trade or business, you are required to file Form 1098.
Our firm, HSMC Orizon LLC, is a limited liability company. Its Federal EIN is 45-3576904. If you made payments from your business totaling $600 or more during 2016 to us, you will need to issue a 1099-MISC.
In all cases, the 1099’s need to be filed with transmittal Form 1096. The applicable due dates for submitting the forms to the recipient is January 31; for submission to the State of Nebraska (in cases where state income is withheld) is January 31; and for submission to the IRS is January 31, 2018.
Each return Form 1099 requires either (a) an employer identification number; or (b) a social security number. If the payee is not incorporated, the IRS requires that the name reported on the first line of the Form 1099 be consistent with the type of identification number provided. Thus, is you report the owner’s name first, you must provide the owner’s social security number on the 1099. If you report the business name first, then you must provide them with the business’ federal identification number. If you report the proprietor’s name on the first line and the business’ federal identification number, the IRS will not be able to match the two and you will receive a notice. If reporting using the business’ name, you need to report the business’ name and the federal identification number. If you do not already possess the identification number, you can request it by having the recipient fill our IRS Form W-9. Obtaining the tax identification number from each 3rd party with whom you do business, before issuing their first payment to them is highly recommended and is a best practice. Recipients of a payment are required to give their identification number upon request.
If you do not have, or properly report, the identification number of all recipients, you may be required to pay the IRS backup withholding equal to 28% of the amount of the original payment. If you don’t have, or cannot get, all identification numbers necessary, please contact us immediately.
For Nebraska – Please Note:
If you are a construction contractor, you and your related 3rd party vendors are subject to additional requirements imposed by the State of Nebraska Department of Revenue; having to do with contractor registration and withholding of Nebraska income tax from payments for construction services rendered in Nebraska. If you believe you may have this situation please call us.
In addition, there are special Nebraska regulations regarding withholding of Nebraska income tax from payments for personal services made to non-residents. If you believe you may have this situation, please call us.
For Missouri – Please Note:
All individuals, businesses and corporations who are required to make a federal at source information report and who make payments to a resident and/or nonresident of Missouri of $1,200 or more, which are not subject to withholding and not a part of an information report of S corporations or partnerships, must file an annual statement of those payments regardless of the manner or form in which payment is made.
The form needed for reporting miscellaneous income is Missouri Form 99-MISC (comparable to federal Form 1099-MISC). Copy 1 must be filed with the Missouri Department of Revenue, along with Form 96, Annual Summary and Transmittal of Information Returns. Copy 2 must be provided to the recipient. Copy 3 is the payer’s copy. This information must be filed on or before February 28 of each year for the previous calendar year.
There are penalties for late filing of Form 1099’s. Penalties for filing less than 30 days late are $50 per form; for filing more than 30 days late, but before August 1, 2018 are $100 and for filing later than August 1, 2018 or for not filing at all are $260.Remember that one form goes to the recipient and one goes to the IRS. Each form (and each copy of a form) will incur a separate penalty. Accordingly, if you are found to have not filed a 1099, the penalty would be $520. Additionally, if your failure to file is deemed by the IRS to have been caused by an intentional disregard of the filing requirements, the IRS will assess an additional penalty of $1,060.
On all business returns (as well as on Schedule C for sole proprietors) the IRS requires that you answer two questions. The first is “Did you make any payments during the year that would required you to file Form 1099?” The second is “Did you file Forms 1099?” These questions are an indicator of the level of interest the IRS is showing with regard to 1099’s. You absolutely do not want to be found to have incorrectly answered these questions and you cannot afford to have failed to file required Forms 1099.
If you have more than 250 1099’s to file, there is a requirement to e-file the 1099’s.
We would be pleased to assist you in preparing your 1099’s and/or your W-2’s. In order for us to prepare your 1099’s, we will need to know the name, address, identification number of, the amount paid to each recipient and the nature of the payment. In order for us to prepare your W-2;s, additional information may be required. If you would like us to assist you in preparing your 1099’s and/or W-2’s, please call us immediately, as they are required to be issued to the payees by January 31, 2018.