1099 Penalty Flags

Avoiding Penalties On The “1099” Play

As we continue with the football theme this month let’s chat about 1099s. It’s only September you say? Exactly! That’s why I’m reminding you to get that game plan started now to prevent any yellow flags on the play. The filing date for non-employee compensation payments (Box 7) on Form 1099-MISC is on or before January 31, 2019. That means in the mail to the individual or company and post marked by that date. Here’s the fun part. Quite a few of those individuals will start asking for theirs right after New Years Day. Who gets a 1099? In the words of the IRS; each person in the course of your business to whom you have paid at least $600 during the year for services performed who is not your employee (including parts and materials). Seems clear enough to me but we get a lot of calls on this one so here’s the list of examples.

  • Professional services, such as fees to attorneys (excluding corporations), accountants, architects, contractors, engineers, etc.
  • Fees paid by one professional to another, such as fee-splitting or referral fees.
  • Payments by attorneys to witnesses or experts in legal adjudication.
  • Payment for services, including payment for parts or materials used to perform the services if supplying the parts or materials was incidental to providing the service.
  • Commissions paid to nonemployee salespersons that are subject to repayment but not repaid during the calendar year.
  • A fee paid to a nonemployee, including an independent contractor, or travel reimbursement for which the nonemployee did not account to the payer, if the fee and reimbursement total at least $600. To help you determine whether someone is an independent contractor or an employee, see Pub. 15-A.
  • Payments to nonemployee entertainers for services.
  • Use Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, for payments to nonresident aliens.
  • Exchanges of services between individuals in the course of their trades or businesses.

The short answer is anyone that you paid over $600 to during the year that is not an employee or a corporation. By the way, that last one is anything you bartered. Yes, that goes in your bookkeeping too. Does that include LLCs? Well, sort of. The simple rule of thumb is: if the LLC files as a corporation, then no 1099 is required. But for all other contractors who are set up as LLCs (but not filing as corporations), your business will need to file 1099 forms for them. “How the heck do I know if they file as a corporation?”, you ask? The good ole W-9 is your answer. Every person that you write a check to should be providing you with a W-9. Don’t just ask for it, insist on it. No W-9, no check. It has all the information you need to get an accurate 1099 to them at the end of the year. w-9 If you don’t have a W-9 for the individuals you paid over $600 to this year, now is a great time to start collecting them. Use them to make sure you’ve set up your vendor correctly in your accounting software and printing the 1099s in January will be an easy goal. Need a little help? We’d love to. Just let us know.