1099-MISC in a Nutshell
Who is subject to 1099 reporting?
The most common vendors subject to 1099 reporting are:
- Vendors who go by their personal name. For example, you make checks payable to “Joe Smith.”
- Vendors organized as an LLC who file as a sole proprietorship or partnership. For example, you make checks payable to “Best Service, LLC.”
- Any attorney or medical doctor, regardless of whether or not they are incorporated.
- Your landlord, unless it is a property management company filing as a corporation.
- Landlords to whom your organization pays rent on behalf of clients receiving financial assistance.
What kinds of payments are subject to 1099 reporting?
Payments by cash or check totaling $600 or more during the year for:
- Services, including parts and materials
How do I get the vendor’s information that goes on the 1099-MISC form?
Ask the vendor to fill out and sign a W-9 form and give it to you BEFORE you pay that vendor.
How do I know if an LLC is subject to 1099 reporting?
Ask the vendor to fill out a W-9 form and be sure to check the box for tax filing status. A sole proprietor or partnership is subject to 1099 reporting. A C-corp or S-corp is not, with a few exceptions including attorneys, physicians and other health care providers.
Tips to Streamline 1099 Reporting
Tip #1 – Exclude travel reimbursements made under an accountable plan
Instructions for Form 1099-MISC say you must report in Box 7 a reimbursement made to a nonemployee if the nonemployee did NOT provide documentation of the expense under an accountable plan. For example, if you paid a speaker an honorarium of $500 plus air fare of $300 based on a receipt from the airline, you could avoid including the airfare for 1099 purposes. The $500 honorarium stays below the $600 filing threshold. On the other hand, if you consider the reimbursement as part of the payment subject to 1099 reporting, the entire amount is now over $600 and you will need to send a 1099-MISC form to the vendor. It may be best to create two checks – one for the travel reimbursement and one for the honorarium subject to 1099 reporting – to be clear as to the treatment of the two amounts.
Tip #2 – Pay by credit card, debit card or PayPal
If you need to pay someone who is a 1099 vendor, if possible pay them by credit card, debit card or PayPal. Then the onus is on the card issuer or PayPal to send a 1099-K. You are not supposed to include payments made by credit card, debit card or PayPal in the 1099-MISC forms you prepare for vendors. Only include payments made by cash or check.
Tip #3 – Ask for the vendor’s email address
Form W-9 currently does not include a space for email address, so be sure to ask for it. The IRS permits online filing services such as efile4biz to send Form 1099-MISC to recipients via email with the recipient’s permission. Email delivery can cut down on delays in mailing time and lost 1099 forms, all of which can save you work responding to questions from vendors about missing 1099s.
Tip #4 – Pay 1099 vendors via a payroll service that can do the 1099 filing for you.
Some payroll services can also process 1099 vendor payments. A benefit is that you can pay 1099 vendors by direct deposit just like your employees. Even better, the payroll service will handle the preparation, mailing and filing of 1099-MISC forms in January, leaving your time free to work on your mission!
Steps to take now
- Review your potential 1099 vendors to see if any were paid a total of $600 or more during the calendar year.
- If yes, make sure you have the information you need to complete form 1099-MISC in January (legal name, tax ID number, mailing address and email).
- If you are unsure of 1099 status or if you are missing any information, ask vendors for a completed W-9 form ASAP.
- File a 1099-MISC form in January for each applicable vendor. The easiest way to send both the recipient and IRS copies is to use one of the online e-filing services such as efile4biz.com or use a payroll service during the year that can handle this task for you.
Clearing up confusion over tax identification number
(Update posted 2/5/2019)
If an independent contractor is the sole owner of a limited liability company, either the owner’s Social Security number (SSN) or the employer identification number (EIN) of the business can go on Form W-9, although the IRS prefers the owner’s SSN.
According to Form W-9 instructions for a sole proprietorship or disregarded entity owned by an individual, “You must show your individual name and you may also enter your business or DBA name on the “Business name/disregarded entity” name line. You may use either your SSN or EIN (if you have one), but the IRS encourages you to use your SSN.”
To wrap up…
Keep up with 1099 vendors as you go through the year so you don’t start the new year scrambling for information. For more useful information on 1099s, see our post “1099-MISC Instructions You Won’t Find Anywhere Else.”