Penalties for failure to file 1099 documents (information returns) with the IRS and failure to furnish recipients with their copies have increased dramatically in recent years. In 2021, for small businesses (less than $5M in average annual receipts in the most recent three years), these penalties can run as high as $280 for failure to file plus $280 for failure to furnish – per document – up to a maximum penalty of $1,130,500 in the aggregate for each of these issues.
New for 2020 is the 1099-NEC to report non-employee compensation. This information was previously reported on 1099-MISC, but has now been split out onto a separate information return. Who must file 1099-NEC, and who must be furnished one? These are questions to ask of a qualified professional. Even individuals who own rental property may be subject to 1099-NEC (and 1099-MISC) reporting, depending upon circumstances.
If you have a payroll service, do not assume that 1099 preparation is included with your basic level of service! In most cases, your payroll service will be completely unaware of any subcontractors or others who must be furnished documents, and don’t expect your payroll service rep to be able to provide answers as to whom should be furnished a 1099.
Your checkbook management software likewise can’t provide any guidance for you in this regard.
Planning to do these internally? To be considered correctly filed, information returns must be complete and accurate. That means full names and addresses, ID numbers (TIN, SSN, etc.), amounts, and in the cases of forms W-2G, 1097-BTC, 1098, 1098-C, 1098-E, 1098-F, 1098-MA, 1098-Q, 1098-T, 1099-A, 1099-B, 1099-C, 1099-CAP, 1099-DIV, 1099-G (excluding state and local income tax refunds), 1099-INT, 1099-K, 1099-LS, 1099-LTC, 1099-MISC (excluding fishing boat proceeds), 1099-NEC, 1099-OID, 1099-PATR, 1099-Q, 1099-QA, 1099-R, 1099-S, 1099-SA, and 1099-SB, a valid telephone number providing direct access to an individual in a position to answer questions about the statement must appear somewhere on it. [N.B.: This is not a complete list of requirements. Please do not rely on this as any type of instruction guide.]
As a reminder, forms 1099-NEC are due out to recipients no later than January 31, and must be filed with the IRS no later than January 31, as well. Forms 1099-MISC are due out to recipients no later than January 31, and must be filed with the IRS no later than February 28. Extensions of time to file with the IRS are available (the first 30-day extension is automatic, but must still be submitted on Form 8809; a second 8809 may be submitted to request another 30 days), but there is no extension of time to furnish documents to recipients.
Generally, we prepare information returns for our business clients as part of our standard service portfolio. If you have a need for this service à la carte, we can surely discuss your needs. Contact us for more information.