Every year, businesses must issue 1099s to individuals and partnerships for payments issued of $600 or more for items such as rent, other income, contract labor, and payments to attorneys. Starting January 2020, payments for non-employee compensation, box 7 of 1099-MISC, will now be issued on the new form 1099-NEC box 1. Determining who must receive a 1099 and obtaining that information, can be crucial to filing on time and avoiding penalties.

Employee vs Contractor

Employee compensation is reported on a W-2, whereas contractor payments are reported on 1099-NEC. The IRS established criteria to determine whether a person in an employee or a contractor. The main things to consider are behavioral control, financial control, and the nature of the relationship. The greater the control, the more likely the person is considered an employee. The IRS can reclassify contractors as employees, so it is important to understand the differences from the beginning.

Best Practices

Obtaining a W-9 before January 31st of the current year, to issue a 1099 for the prior year can be stressful and end up with no results. As a best practice, require contractors to fill out a W-9 BEFORE paying them. Failing to issue a 1099 can result in penalties for failure to file and failure to file on time.

Penalties

Penalties for failure to file 1099s on time can range from $50 per form to $270 per form, however, an intentional disregard to file a 1099 can begin at $550 per form, with no maximum limit. These amounts are adjusted for inflation and change every year.

At Abacus CPAs, we are here to help our clients file 1099s on time and accurately. Be sure to keep updated W-9s and accurate records on the amounts and type of payments. Rental payments, payments to attorneys, and contract labor payments are just some of the reasons to issue a 1099 form. Contact us at 417-823-7171 for questions regarding 1099-MISC, 1099-NEC, and any other 1099 forms.

Helpful Tools:

Types of 1099s

Employee Vs Contractors

Penalties


Sabrena Shipley is a Senior Analyst in our Traditional Tax Department. Sabrena is excellent in situations that require the strategic organization of information. She sets priorities and puts them into appropriate sequences. Her talent with both strategies and tactics makes her essential to any massive effort.

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