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Form 1099 Reporting Payments to Service Providers
Businesses that utilize the services of non-employees (independent contractors) have an annual reporting obligation if the payment for services or payment for the use of property during the calendar year is $600 or more to the vendor. These service providers conduct business in many forms such as in their own name, sole-proprietorship (DBA), partnerships (either as a general or limited partnership), trusts, limited liability companies (LLC), and corporations. Note, current law does not require reporting payments to corporate service providers (an exception applies to attorneys operating as a P.C.).
Form 1099-MISC Miscellaneous Income is used by the IRS for reporting non-employee compensation, rents, and other non-compensatory income. The Form 1099-MISC must be completed annually, issued to the service provider, and filed with the IRS, the Connecticut Department of Revenue Services, and Massachusetts Department of Revenue by January 31st.
Who are Service Providers?
These are individuals and businesses that perform services to your business. They could be a consultant, attorney, cleaning company, painter, groundskeeper, repairman, etc. The payment is for the performance of services and not the purchase of products. Thus, for example, an insurance agency would not be a 'Service Provider' because the agency is selling a product, liability insurance. An individual paid to clean the offices would be a 'Service Provider.'
'Service Providers' would not include individuals considered to be employees of your business. Employees are issued Form W-2 and subject to income and payroll tax withholding.
Information You Need to Obtain to Get Started.
You need to obtain from the service provider the legal name of the business, mailing address, and tax identification number. The IRS Form W-9 Request for Taxpayer Identification Number and Certification is the proper method for obtaining this information, and the time to obtain the completed Form W-9 is before payment is made. A good practice is to obtain a Form W-9 from any service provider, regardless of the amount paid during the year. The Form W-9 only takes a minute to complete and business owners are accustomed to providing this information. The information contained on the Form W-9 will be used by you each January when you are required to prepare and file Form 1099s. You should keep copies of the Form W-9 with the other tax records for the business.
Next you need to go through the business checking account and determine the total amount paid to a service provider during the calendar year. If the amount is $600 or more, you need to prepare a Form 1099-MISC for that provider. Once you have completed the various Form 1099-MISCs, you must complete Form 1096 Annual Summary and Transmittal of U.S. Information Returns, which is a summary form providing the IRS with information regarding the type of Form 1099 being sent in, the number of Form 1099s, and the total dollar amount being reported. If you complete 250 or more Form 1099s you must register with the IRS and submit these forms electronically.
The Connecticut Department of Revenue Services (DRS) will allow paper filing of Form 1099-MISCs for 2016 if the total is 24 or less, but requires mandatory filing if more than 24 forms. The Form 1099-MISC is submitted along with their Form CT-1096. The DRS encourages all filers to use their electronic filing system for Form 1099-MISCs through their Taxpayer Service Center. Note, you are only required to send Connecticut the Form 1099-MISCs that relate to rents paid for property located in Connecticut or for services performed in Connecticut.
For 2016 and subsequent years, the Massachusetts Department of Revenue requires filing various Form 1099s electronically through their MassTaxConnect electronic system for filing and paying taxes. You cannot paper file these forms. You will need to register with the Massachusetts Department of Revenue to create an account at MassTaxConnect. If you need assistance with registration or accessing the account, please call the Contact Center at 617-887-6367.
Examples
A business hires John C. to clean the office for $200 each month. John is paid for 10 months, or $2,000. A form 1099-MISC must be issued to John with his SSN.
Your business hires Alex H., dba Expert Bookkeeping Service, and pays $3,000 during the year. If Expert Bookkeeping does not have its own EIN (employer identification number) and instead uses Alex's SSN, then a Form 1099-MISC should be issued using the SSN and the payee would be Alex H, dba Expert Bookkeeping Service. If you issue the Form 1099-MISC to Expert Bookkeeping Service and use a SSN, the IRS will send you a notice because the payee information on the Form 1099-MISC does not match the IRS records.
Your business hires Constant Painting LLC to paint the exterior of the building for $5,000. Constant Painting LLC must be issued a Form 1099-MISC because the LLC tax classification is that of a partnership.
Your business pays annual rent of $7,500 for office and shop space to ABC Realty, LP. ABC Realty, LP must be issued a Form 1099-MISC (Box 1) because ABC Realty's tax classification is that of a partnership. Please note, if the business is paying rent to a building corporation, a Form 1099-MISC is not required because the landlord is a corporation.
Your business hires Greentree Masons Inc. to plow the parking lot during the winter. The payments are $1,300. A Form 1099-MISC is not required because the service provider is corporation.
Your business hires X,Y & Z, P.C., Attorneys at Law, for legal advice concerning a lease, and the fee is $700. Although the law firm is a professional corporation, (P.C.), payments to attorneys are not exempt from information reporting and a Form 1099-MISC must be issued.
Where Do I Get the Forms?
For more information regarding information reporting with Form 1099, go to the Publications section of the IRS website atwww.IRS.govand, in the Form and Publications section, you can obtain the Form W-9, and instructions for the Form 1099 series. For the Connecticut CT-1096 form and instructions go to the DRS website atwww.CT.gov/DRSand go to their Forms and Publication section.
You can obtain the actual forms by ordering them from the IRS, online, from the Forms and Publications section, or calling 1-800-829-3676.
Forms can also be found at most office supply stores, but don't wait until the last minute because the supplies run out. The local IRS offices will have forms but the supply tends to be limited.
What Other Form 1099s are Required?
There are a number of Form 1099s the IRS has created for specific purposes or transactions. More detailed guidance can be obtained from the IRS website, in the section Forms & Publications. Within the search window, type in Form 1099 to obtain the general instructions and specific forms.
What Happens if We Do Not Issue These Forms?
The IRS can impose penalties for failure to issue a Form 1099-MISC to a service provider of up to a maximum of $260 and a separate penalty for failure to file the Form 1099-MISC with the IRS of up to a maximum of $260. Both penalties may be assessed for each occurrence and increase in amount based on how late the filing was. If there is intentional disregard, the IRS may assess up to $530 for each type of failure ($1,060 total). The States of Connecticut and Massachusetts will assess their own penalties as well. These penalties are very significant, so compliance is extremely important.
If you have any questions concerning filing requirements, please do not hesitate to call.
Hartford office contact: Chris Doyle (p) 860-524-4451 (email)[email protected]
Hamden office contact: Laurie Platner (p) 203-848-2406 (email)[email protected]
Holyoke office contact: Peter Kravetz (p) 413-536-3970 (email)[email protected]
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You give employees W-2 forms, but independent contractors get 1099s. The 1099 goes out to independent contractors if you pay them $600 or more to do work for your company during the tax year. Some contractors, including suppliers, don't need a 1099. The federal government changed the 1099 law in 2010 to require suppliers receive 1099s, but it repealed that change in 2011.
Suppliers
The IRS instructions for the 1099-MISC form state specifically that you do not have to provide a 1099 to suppliers of ' merchandise, telegrams, telephone, freight, storage, and similar items.' Corporations are also exempt from 1099 requirements, with the exception of corporations you pay for medical or health care, or law firms that you've hired for legal services. You also don't have to submit 1099s for payments to tax-exempt organizations or to American or foreign governments.
Fish
One exception to the rules for suppliers applies if you deal in fish. If your company buys fresh fish for resale and you pay $600 or more to any one supplier over the tax year, that supplier receives a 1099. This also applies to all other forms of aquatic life such as oysters, shrimp, crab or scallops. If your fish supplier is a corporation, you still submit a 1099. You must keep records of individual payments throughout the year to each supplier but you only have to submit one 1099 per individual or company.
Details
The $600 cutoff point doesn't apply only to money. The Internal Revenue Service states that you have to make out a 1099 if you make $600 worth of payment in rent; services; parts and materials; prizes; awards; or other payments to an independent contractor who isn't otherwise exempt. You don't report scholarships or grants on a 1099; if the recipient has to pay taxes on scholarship money, you report the scholarship, but as taxable wages on a W-2.
Change
In the 21st century, federal officials have discussed expanding 1099 requirements to include vendors who sell you $600 or more in supplies. The 2010 federal health care bill included a section establishing that requirement, taking effect in 2012. In April 2011, however, President Barack Obama signed a repeal bill. Supporters of 1099s for suppliers have said it will make it easier to track business expenditures and tax liabilities. The president, in his signing statement, said that repealing the change will save small businesses from the added paperwork they would need to comply with the rule.
References (2)About the Author
A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in 'Newsweek,' 'Air & Space,' 'Backpacker' and 'Boys' Life.' Sherman is also the author of three film reference books, with a fourth currently under way.
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Sherman, Fraser. 'Do Suppliers Get 1099s?' Small Business - Chron.com, http://smallbusiness.chron.com/suppliers-1099s-18184.html. Accessed 30 June 2019.
Sherman, Fraser. (n.d.). Do Suppliers Get 1099s? Small Business - Chron.com. Retrieved from http://smallbusiness.chron.com/suppliers-1099s-18184.html
Sherman, Fraser. 'Do Suppliers Get 1099s?' accessed June 30, 2019. http://smallbusiness.chron.com/suppliers-1099s-18184.html
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If youâre in HR or payroll, youâre no stranger to compliance management, forms, and deadlinesâthough keeping them all in order may be a different story. We want to be sure youâre equipped with the right information to keep everything on track year after year, from ACA to FLSA.
Thatâs why we put together the HR and payroll compliance calendar every year, to bring you an important list of dates and deadlines you need to know to help keep compliance on track for your workplace. Check out our latest calendar for 2019.
2019 HR and Payroll Compliance Calendar: Key Dates for HR and Payroll ManagersJanuary
Federal holidays
Tuesday, January 1: New Yearâs Day
Monday, January 21: MLK Day
Important dates and deadlines in January 2019
*At the time of publishing, the IRS has not yet released the official key dates for tax season. Based on key dates in years past, tax season may begin on Monday, January 28, though this has not been confirmed by the IRS. Experts also speculate that potential regulatory changes may delay the beginning of tax season. We will update this calendar as soon as the IRS releases an official statement. See the IRS Employerâs Tax Guide from 2018.
February
Federal holidays
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Monday, February 18: Presidentâs Day (George Washingtonâs Birthday)
Important dates and deadlines in February 2019
March
Friday, March 1: National Employee Appreciation Day
Important dates and deadlines in March 2019
April
Important dates and deadlines in April 2019
May
Federal holidays
Monday, May 27: Memorial Day
June
Important dates and deadlines in June 2019
Sunday, June 30: End of Q2, calendar year.
JulyAtf Payroll
Federal holidays
Thursday, July 4: Independence Day
Important dates and deadlines in July 2019
August
Take a vacation!
September
Federal holidays
Monday, September 2: Labor Day
Important dates and deadlines in September 2019
October
Federal holidays
Monday, October 14: Columbus Day and Indigenous Peopleâs Day
Important dates and deadlines in October 2019
November
Federal holidays
Monday, November 11: Veterans Day
Thursday, November 28: Thanksgiving Day
Important dates and deadlines in November 2019
Friday, November 1: Enrollment begins for 2020 health insurance plans for individuals through the Marketplace.
December
Federal holidays
Wednesday, December 25: Christmas Day
Important dates and deadlines in December 2019
You made it through another year! Time to relax and enjoy the holidays with the ones you love.
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