1099-MISC Instructions You Won’t Find Anywhere Else
Let us guess. What you really want is not just basic 1099-MISC instructions. You want the inside scoop on how to deal with this task so you can cross it off your list. You want peace of mind that you are complying with IRS requirements. And if you’ve ever been through a “hair on fire” January dealing with 1099-MISC reporting problems, we know you want to avoid a repeat!
That’s why we are sharing a “behind the scenes” list of practical Form 1099-MISC instructions. Based on years of experience, we tell you what to do to avoid common 1099-MISC pitfalls and make the filing process go smoothly.
For an overview of Form 1099-MISC and who is subject to reporting, see our post 1099-MISC In a Nutshell. For our list of practical 1099-MISC instructions, read on.
#1 – Make a plan for 1099 reporting
Without a plan, you will arrive at January unprepared for 1099 reporting. You will find yourself scrambling for information so you can send 1099-MISC forms to recipients and file with the IRS by January 31. You may omit required recipients while sending 1099s to recipients who don’t need them. Errors in your books may result in erroneous amounts reported. Your 1099 filing process will likely be more time consuming and stressful than necessary.
If you have not put a plan in place already, now is the time to figure out how you will accomplish your 1099-MISC reporting and make sure you have all the required information.
#2 – Get all necessary vendor information up front
Ask vendors to complete Form W-9 before you pay them the first time so you can collect information required for Form 1099-MISC.
Make sure the vendor gives you a properly completed W-9 before a check goes out the door. Sometimes vendors fail to enter their tax ID number. If you are missing the tax ID number you will not be able to file online; you will have to send a paper return (a big hassle) and you are subject to IRS penalties.
Vendors should enter the legal name associated with their tax ID number on Form W-9. Not a nickname. Not solely a “doing business as” name. More on that shortly.
Sometimes vendors overlook checking a box for their tax filing status in Form W-9 Box 3 which helps you determine if a 1099 is required. (With a few exceptions, payments to a corporation or an LLC treated as a C or S corporation do not have to be reported on Form 1099-MISC.) If the vendor does not indicate tax filing status, you can always send a 1099-MISC in case it’s needed. Knowing the filing status helps you avoid unnecessary work.
Tip: You can now have vendors complete W-9 forms within QuickBooks Online. Much easier than chasing down a paper form!
#3 – Mark vendors as subject to 1099 reporting in QuickBooks
Once you have a properly completed W-9 form, set up the vendor information in QuickBooks. Take the time to enter the vendor legal name in all the appropriate fields, as well as the address. (You’ll be happy this part of the work is done come January!) Also be sure to check the box indicating the vendor is subject to 1099 reporting.
Both QuickBooks Desktop and QuickBooks Online have robust Form 1099-MISC reporting capabilities. To use the 1099-MISC features, you must tag the vendor as subject to Form 1099-MISC by checking the box in the vendor record.
#4 – Map accounts in QuickBooks to Form 1099-MISC
Tagging vendors for 1099 reporting is not the only thing you must do in QuickBooks. You must also map your accounts to the boxes on Form 1099-MISC. Most commonly used are Box 7 for nonemployee compensation and Box 1 for rents. Both QuickBooks Desktop and QuickBooks Online have 1099 wizards that walk you through the mapping process.
Make sure all accounts that include 1099 vendor payments are mapped to Form 1099. If payments to a vendor are coded to multiple accounts, but not all of the accounts are mapped to Form 1099-MISC, you will not capture all the vendor payments.
For example, you pay a handyman for painting an office and building a sidewalk. The painting is coded to the Repairs and Maintenance account which is linked to Box 7 on Form 1099-MISC in QuickBooks. The new sidewalk is coded to Leasehold Improvements which is not linked to Form 1099-MISC. The amount paid for the sidewalk is omitted from the vendor’s 1099-MISC.
Remember – for a vendor payment to be included in Form 1099-MISC, you must do two things in QuickBooks:
- Mark the vendor as subject to Form 1099-MISC in the vendor record, and
- Map the account to which the vendor payment is charged to a box on Form 1099-MISC.
#5 – Scrap paper forms and e-file instead
Unless you enjoy trying to get your printer to line up the tax ID numbers in the tiny spaces on pre-printed 1099-MISC forms, you can avoid this headache altogether. A few options:
- E-file directly out of QuickBooks Online. See our blog post Easy 1099 E-file with QuickBooks Online.
- E-file from QuickBooks Desktop. See an Intuit article here. This option appears to be a bit cumbersome and expensive, so you might want to consider the next option.
- Use a payroll service to pay 1099 vendors and file 1099-MISC forms. An added benefit is that a payroll service can facilitate paying vendors by direct deposit, eliminating checks. Using a payroll service helps you enforce consistent treatment of payments to 1099 vendors and compliance with 1099 reporting requirements.
- E-file 1099s using an online service such as efile4biz.com. This option is good if you only have a few 1099s and you determine the cost savings over other e-file options is worth it.
Paper forms are on their way out, anyway. The Taxpayer First Act (TFA) of 2019 lowers the threshold for e-filing based on number of forms filed from 250 in 2020 to 100 in 2021, and 10 in 2022. (By the way, TFA also requires Form 990 to be e-filed. Read a good overview of TFA changes here.)
#6 – Clean up duplicate vendor names
If you recorded payments using two or more names for the same vendor in QuickBooks, you will not be able to accumulate the correct total paid. This error can arise due to spelling errors or using more than one payee name, such as a legal name and d/b/a name or the owner’s personal name. Always make out checks to the business name unless the intent is to pay someone personally. In QuickBooks you can clean up duplicate vendors by merging two names into one vendor record.
#7 – Fix erroneous payment entries
Make sure your books do not include erroneous payments to vendors. In one situation, an outstanding check at December 31 was actually a duplicate entry of the real payment to the vendor. QuickBooks included this duplicate check in the vendor’s 1099-MISC total amount paid. The vendor caught the error when she received her 1099-MISC, and contacted the client to request a corrected 1099.
Don’t set yourself up for extra work. Look over the list of outstanding checks in your December 31 bank reconciliation(s). Make sure all outstanding items are actual outstanding checks. Delete erroneous or duplicate checks. Void checks that should be voided. By the way, cleaning up outstanding items is something you should do every month, not just at year end.
#8 – Exclude debit card payments
Checks you write to vendors are included for 1099 reporting. Payments by credit card, debit card or PayPal are not. (These payments are reported on form 1099-K by the bank or PayPal.) If you pay a vendor with a debit card, enter DEBIT as the Reference number so QuickBooks knows to exclude this payment for 1099 purposes. If you leave the payment method blank, QuickBooks will erroneously include the debit card amount paid as a 1099-MISC payment.
#9 – Exclude expense reimbursements
Instructions for Form 1099-MISC say you must report a reimbursement made to a nonemployee in Box 7 if the nonemployee did NOT provide documentation of the expense under an accountable plan. For example, you pay a speaker $500 plus $300 for airfare. If the speaker did not account for the airfare by providing a receipt, then the entire $800 payment would be subject to 1099-MISC reporting.
On the other hand, if you reimburse the speaker the amount per the receipt for the air fare, you can omit the reimbursement from 1099 reporting. In this example, it also results in no 1099-MISC being required at all since the $500 speaker fee falls beneath the $600 filing threshold (assuming that was the only payment to this person during the year).
#10 – Use the right name and tax ID number
If you enter only the fictitious (d/b/a) name instead of the legal vendor name on Form 1099-MISC, the IRS will send you a letter indicating a TIN/name mismatch. Make sure you use the legal name associated with the tax ID number.
Getting the name and tax ID number right is especially tricky for a Limited Liability Company (LLC). In the case of an LLC filing as a sole proprietor, enter both the sole proprietor’s legal name and the name of the LLC in the recipient box as shown in this example:
Y Drywall, LLC
For the recipient’s TIN on Form 1099-MISC, enter the Social Security number for Ronald Green. An LLC filing as a sole proprietor is also called a disregarded entity since the income of the LLC is reported on the owner’s personal tax return.
If the sole proprietor does not have an LLC and uses a dba name, Form 1099-MISC instructions give the following example for recipient name:
dba/ Y Drywall
Again, the recipient’s TIN on Form 1099-MISC is the Social Security number for Ronald Green.
A footnote on page 5 of the instructions following Form W-9 regarding sole proprietors or disregarded entities states, “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.”
#11 – Include ALL your 1099 vendors
Don’t overlook vendors who need 1099s. Payments totaling $600 or more to the vendors below are reportable in Box 7 of Form 1099 unless another box is indicated:
- The teenage daughter of an employee who is paid to design the web site
- The band that plays at the annual fundraising event, unless they file as a corporation
- Attorneys (Fees for services go in Box 7 while settlement payments made to an attorney go in Box 14.)
- External bookkeepers and CPAs, unless they file as a corporation
- Physicians or other health care service providers (Box 6)
- Payees of rents on behalf of clients, excluding real estate agents or property managers (Box 1)
#12 – Reduce work by sending only required 1099s
Every year we receive a few 1099-MISC forms. We will gladly provide a W-9 to show that we are an LLC filing as an S corporation, and therefore exempt from 1099 requirements. Don’t do more work than you have to. Filing 1099-MISC forms costs your organization time and money and also wastes time for the vendors who receive them (and sometimes causes confusion). Get those W-9 forms completed up front and know the rules for 1099-MISC filing so you are prepared to file only the 1099-MISC forms that the IRS requires to be filed.
Bonus – Reports to help you check QuickBooks for 1099 vendors and payments
Periodically run reports in QuickBooks to make sure 1099 vendor information is accurate. For 1099 reports in QuickBooks Desktop, see this article. For QuickBooks Online reports, see below.
Current year 1099 vendor activity – Run a recently added report in QuickBooks Online under Expenses and Vendors called 1099 Transaction Detail Report. (You can also find this report by typing “1099” into the search box at the top of the reports list.) Filter the report to show current year transactions and click the radio button to display the report on cash basis.
Vendors marked for 1099 tracking – Run the Vendor Contact List report. Click Customize, then click to expand Rows/Columns. Check the box for Track 1099 to add a column for vendors tagged for 1099 reporting. You can export this report to Excel and sort on the Track 1099 column to more easily determine if all vendors who should be tracked for 1099 reporting are properly tagged. You can also customize the report to add columns for First Name, Last Name and Company Name to make sure all name information is set up, and verify in the Address column if you have the entered the vendor address. Now you can clean up any missing information.
In both QuickBooks Desktop and QuickBooks Online it’s a good idea to run the 1099 wizard (see #4 above) to make sure all accounts that include 1099 vendor payments are linked to a box on Form 1099. Commonly overlooked accounts include fixed assets, special events and repairs and maintenance. Caution – QuickBooks Online will only show prior year 1099 vendors in the 1099 wizard, which is why you need the “Current year 1099 vendor activity” report described above.
There you have it – the instructions that should have come with Form 1099-MISC. Make a plan, put processes in place to stay on track, and periodically run reports to check that your data is correct and complete. Now is a great time to make sure you are ready for 1099 filing season.