1099s, What You Need to Know
Most people know what 1099s are but aren’t sure if they need to issue any (or mistakenly think that people they pay, don’t need them.) If you paid somebody (or a company) over $600 for a service, I’ve got news for you, you probably need to issue them a 1099.
This is not just independent contractors, but also, attorneys, repair people, landlords, or anybody else that provided you a service.
We’re going to get into if you need to issue a 1099, but first, let’s see what happens if you needed to issue one, but didn’t.
What Happens If I Don’t Issue 1099s but I Needed to?
If you don’t issue 1099s that you were supposed to, the IRS can nail you by giving you penalties.
There are two types of penalties you need to worry about:
- Not filing it on time (late filing penalty)
- Not filing it at all (back up withholding)
The first penalty is for filing them late. Depending on how late you are, the penalties change. It can range from $60 to $630 per 1099 (IRS chart of late 1099 filing penalties).
The second, much more severe penalty, is something called Back Up Withholding (BUW) which is a 24% penalty based on the amount of the 1099 (e.g. if you need to issue a 1099 for $10,000 and you don’t, they can penalize you with a $2,400 penalty – 24% x $10,000).
What If I’m not Sure that I need to Issue 1099s?
The truth is most people have no idea that they need to issue 1099s. That’s because there are so many types: 1099-MISC, 1099-NEC, 1099-K, etc. All of these have different rules, different thresholds, and different due dates.
In order to make sure you don’t miss anything; I’m going to go over the things you need to know so you don’t get in trouble with the IRS:
- Who needs to Issue 1099s?
- Types of 1099s, and who gets them
- Do LLCs get 1099s?
- IRS due dates and new e-filing requirements
- What’s a W-9?
- What if I pay my Vendor with a Credit Card?
- What if my contractor is overseas
Who Needs to Issue 1099s?
First thing you need to know is that you only need to issue 1099s if you’re a business owner or engage in some type of trade or business (like being a landlord). If you don’t own a business you don’t have to worry about issuing 1099s.
Now that we got that out of the way, time to get to the entrepreneurs and what they need to know.
Types of 1099s and Who Gets Them
If you do own a business or are engaged in a trade or business, let’s talk about the different types of 1099s. There are a lot of them, but the most common one you need to worry about is the 1099-NEC (for independent contractors).
Here’s a list of the other ones, but once again, the one you are most interested in is the 1099-NEC.
| Vendor types | Threshold Amount | Type of 1099 |
|---|---|---|
| Independent Contractors, Professionals, Attorneys, & Commission Payments | $600 or more | 1099-NEC |
| Payments through online platforms | $20,000* & 200+ transactions | 1099-K |
| Dividends, Interest, and Royalties | $10 or more | 1099-DIV, 1099-INT, or 1099-MISC |
| Professional Contractor Fees | $600 or more | 1099-NEC |
| Professional Fees to Doctors | $600 or more | 1099-MISC |
| Rent payments | $600 or more | 1099-MISC |
| Payments to Attorneys for Settlements | All | 1099-MISC |
Do LLCs get 1099s?
Yes!
If you pay anybody for a service, whether it’s a person, or an LLC they need to get a 1099.
The only type of companies that don’t get 1099s are Corporations. I know for most of us that sounds weird, since we think of Corporations and LLCs as being the same thing, but they are not.
Corporation have much stronger rules and regulations they have to follow, so the Congress decided that they don’t need to get 1099s (unless the corporation is a law firm or medical practice – in that case, they still get 1099s.)
To be clear, LLCs get 1099s, Corporations don’t get 1099s (most of the time).
1099 Due Dates & New e-Filing Requirements
Depending on the type of 1099 you’re filing, and how you file them with the IRS, there are different due dates.
New e-Filing rule: Starting this year, If your company issues 10 or more 1099s, you must e-File them (that means no paper copies).
1099-NEC: which are 1099s to Independent Contractor and Vendors – are all due by the end of January (1/31/2024.)
1099-MISC or 1099-Ks: – have different due dates based on if you e-File them or paper file them (see chart below).
Here are the 1099 deadlines for 2024:
| Type of 1099 | Due Date – Electronically Filed | Due Date – Paper Filed | Due Date – Recipients |
|---|---|---|---|
| 1099-NEC | January 31st, 2024 | January 31st, 2024 | January 31st, 2024 |
| 1099-MISC | April 1st, 2024 | February 28th, 2024 | January 31st, 2024 |
| 1099-K | April 1st, 2024 | February 28th, 2024 | January 31st, 2024 |
Now let’s talk about what you need to get to issue a 1099.
What’s a W-9? (how to collect 1099 information)
The moment you pay someone over $600 you need to get their information to see if they should get a 1099 or not. The main way people get the 1099 information is by asking for a W-9. It’s a form made by the IRS, but you can use your own form if you like (but most people just use the W-9.)
There are five things that the service provider must file out on the W-9:
- Their name or company name
- Their company address of where the 1099 gets mailed
- Check a box on the type of tax classification they are (person, business, corporation, etc.)
- The companies EIN or person’s social security number
- Signature and Date of person filing out the W-9
Here’s a visual to see what needs to be filled out:
Make sure to get this from them during the year when you still need to pay them. If you try to get it after the year is over, some vendors all of a sudden disappear.
What if I Pay My Vendor with a Credit Card?
Good news for you – if you pay your vendor with a credit card, like American Express or Chase Sapphire, you don’t have to issue them a 1099. Why? because the credit card processor will issue them a 1099-K.
But if you pay them with a Debit Card, you will need to issue them a 1099 (so don’t accidentally confuse your debit card with a credit card).
If you pay them over $600 for services with cash, check, ACH, Zelle, or Venmo you will need to issue them a 1099.
What if my Contractor is a Foreigner that’s Overseas?
If you are paying an independent contractor, overseas (e.g. programmers in Romania, copywriters in India, etc.) you do not have to issue them a 1099. However, you will need them to provide you with a W-8BEN that certifies that are located overseas. Make sure to keep the W-8BEN in your file, incase you get audited.
There is one more important thing you need to know about foreign overseas contractors. They must not be performing the services on United State soil (otherwise you will get into additional tax reporting issues.)
In other words, make sure they are doing the work in their country of origin, not in the U.S.A.
Conclusion
Now you know what you need to do regarding 1099s. You have a few weeks left to get them out. Don’t miss any by accident, otherwise you may get in trouble with the IRS.