New 1099 Form for 2021
The craziness of 2020 isn’t over, despite the date change on the calendar. There’s a new 1099 form for contractors you paid in 2020. Here’s what you need to know.
Any person or company to whom you paid at least $600 for services in 2020 should receive a 1099. This includes all individuals, partnerships, Limited Liability Companies (LLC), or Limited Partnerships (LP) to whom you paid $600 or more over the past year by cash, check, or bank transfer (ACH). It does NOT include W-2 employees or any reimbursements they were paid.
Of course, it’s not quite that straightforward.
There are now two 1099 options:
1099-NEC is used to report all non-employee compensation for contractors, attorneys, etc. Form NEC is due to the IRS by February 1, whether filed by mail or electronically. You must provide a copy to the recipient by February 1st as well.
1099-MISC is used to report all other payments. Most notably, 1099-MISC will be used to report your rent payments. Form MISC is due to recipients by February 1. Form MISC is due to the IRS March 1 if you’re filing by paper or March 31 if you’re e-filing.
Penalties apply if you miss the deadlines for either form, and penalties increase the further past the deadline you file. The fine is $50 if you file within 30 days, $100 if you file more than 30 days late but before August 1, and $260 if you file on or after August 1.
Your CPA should be handling these forms for you, but if not, talk with a CPA today about getting these forms filed before the February 1 deadline.
Here are the rest of the must-know details about the 1099 forms:
1099 forms are not required for:
- Reimbursements paid to contractors separate from their service fee.
- As a rule, if you need to reimburse a contractor for materials, fees, etc, the reimbursement should be separate from their service fee. If the reimbursement is included with their service fee, then do not try to separate out the reimbursement portion. Report their full compensation on their 1099. The contractor will determine what expenses to deduct when filing their taxes.
- Payments to corporations.
- If a company is an Inc, they do not require a 1099. If a company is an LLC and they file their taxes as a C-Corp or S-Corp, they do not require a 1099. If you are unsure of the company’s tax filing status, you should issue a 1099 for them just to be safe.
- Payments to contractors made by credit card or PayPal.
- If you paid a contractor with a credit card, it is the credit card company’s responsibility to handle the required reporting.
- Because Paypal uses the same clearinghouse system that credit card companies use, the IRS does not require a 1099 from the contractor when they file their taxes. You can read more about this on Paypal’s website.
A 1099 is required if you pay a contractor through a P2P platform, such as Venmo or Cash App.
Any attorney, law firm, or provider of legal services to whom you paid $600 or more over the past year will require a 1099.
If you pay rent directly to the property owner, you should issue them a 1099 for your total rent payments. But if your rent is paid through a real estate agent or property manager, then it is their responsibility to issue a 1099 to the property owner.
Filling Out 1099 Forms-What info do you need?
When filing 1099s, you need the contractor’s legal name, SSN or EIN, their legal address, and their total payments received during the past year.
When working with a new contractor, you should always ask them to complete a W-9. You can find the current W-9 form here: https://www.irs.gov/pub/irs-pdf/fw9.pdf. We recommend attaching the W-9 to their account in Quickbooks.
Double-check the information you have on file with existing contractors. Many people moved this past year, so now would be a good time to confirm that you have the correct address for each of your contractors.
All these changes might leave you feeling like you don’t have control of your agency’s financials. You’re not alone. Talk with a CPA today, and we can help you gain control and run your business more confidently.