posted December 1, 2016
1099-MISC: What Do I Need to Know?
by Aaron Vix, CPA, Senior Associate
Is your organization required to issue a 1099-MISC to vendors it does business with? Not sure? Let’s discuss some requirements and best practices.
The IRS requires your organization to file Form 1099-MISC for each person to whom you have paid at least $10 in royalties, or at least $600 in rents, services performed by someone who is not your employee (including parts and materials), prizes and awards, other income payments, medical and health care payments, and payments to an attorney.
The IRS instructs that some of the aforementioned payments do not have to be reported on Form 1099-MISC. For example, a Form 1099-MISC is generally not required for payments to a corporation (including a limited liability company (LLC) that is treated as a C or S corporation) or wages paid to employees. For assistance in determining whether someone is your employee or an independent contractor, you should consider consulting the twenty factors outlined in IRS Revenue Ruling 87-41. These are commonly summarized into three categories including behavioral control, financial control and type of relationship.
As best practice, you should always require a Form W-9 from all vendors prior to them performing any work. This form will indicate whether this vendor will require a 1099 at year end. This will also identify each vendor’s tax identification number (TIN). Further, your organization could be required to withhold income taxes from certain vendors’ payments. For example, if the vendor has not provided a valid TIN, you are required to begin backup withholding. It is your organization’s responsibility to properly withhold tax payments and file Form 1099’s in accordance with IRS regulations.
If you paid a vendor during the year, and later determined that the vendor should have been subject to backup witholding and requires a Form 1099, you run the risk of the vendor refusing to complete the Form W-9 and providing you with required information. This could result in IRS fines and penalties for filing incorrect returns. Further, your organization may also become liable for any uncollected tax amounts.
While it is critical to obtain a W-9 prior to the vendor performing any work, it is also a best practice to obtain a new W-9’s on an annual basis to capture any vendor changes.
These best practices should help you prevent those 1099 year-end IRS headaches, fines, and fees. For additional information, see the wealth of information provided by the IRS’s instructions for its Form 1099 and W-9 at www.irs.gov. Webinars on 1099 requirements are also commonly offered, including our upcoming HMU webinar on January 9, 2017. For details and online registration, visit http://bit.ly/1099webinar17
The content of these pages is for general information purposes only and does not constitute advice. Heinfeld, Meech & Co., P.C. tries to provide content that is true and accurate as of the date of writing; however, we give no assurance or warranty regarding the accuracy, timeliness, or applicability of any of the contents.