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1099-Misc Forms Explained

1099-Misc is a type of information return required by the IRS for income reporting purposes to track payments made to independent contractors. These are usually people who provide services to your business such as accounting, general construction contractors, service technicians, attorneys, landlords, etc. who are NOT employees of your business.   These payments may also include mileage reimbursements and materials provided.

According the IRS:

What is nonemployee compensation? If the following four conditions are met, you must generally report a payment as nonemployee compensation.

  • You made the payment to someone who is not your employee;
  • You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations);
  • You made the payment to an individual, partnership, estate, or, in some cases, a corporation; and
  • You made payments to the payee of at least $600 during the year.

The biggest challenge is making sure you know how to properly classify independent contractors and employees.   This will help avoid penalties for not withholding income tax from these payments if they are deemed to have been employees.

In order to determine tax payer status, ID information, and 1099 eligibility, you must obtain a FORM W-9 from each of your subcontract vendors.  It is a good policy to adopt that you do not issue payments to new vendors until you have their W-9 form on file.  That way, you will not be scrambling at year-end to get information such as their tax ID and address in order to process their 1099 forms or to know if they are exempt as a corporation.  1099 Forms are due to each recipient by January 31st and to the IRS (form 1096) by February 28th.

New Changes to the 1099-Misc Rules :

Few people are aware of new changes to the 1099 Rules that were passed with the Healthcare Reform Bill. Under the old rule, non-employee compensation for services that totaled more than $600 per year required having a 1099 form issued. Also, under the old rule Corporations were exempt so you wouldn’t have to issue a 1099 to PCs-R-Us, INC.  if they fixed your computer, for example.

The new rule states that beginning in 2012 payments that total $600 or more (at once or cumulative) made to ANYONE for ANYTHING, including corporations for services AND GOODS must be issued a 1099-misc form. You read that right! If you are a business, and you purchase more than $600 worth of supplies at Staples or Walmart, you will be required to issue them a 1099 form at year end.  There are currently attempts at repealing this provision which have so far, (as of this writing) have been unsuccessful.

The IRS has also created a new 1099-K form requirement which is already in effect for 2011.

There are actually many various 1099 forms for different types of payments and you should always consult with a qualified accountant or tax professional for specific help in this area for your business.  Feel free to contact us for more information.

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New 1099-K Form Requirements start in 2011

December 31, 2010 1 comment

Starting in 2011, if your business processes credit cards as a form of payment, your credit card processor must issue you a form 1099-K for the gross amount received if you processed more than 200 payments AND for more than $20,000. This is also true for all online retailers including Ebay and Amazon sellers who use PayPal to process their transactions.

If you are an online seller and meet these thresholds, you are more than a “casual seller” and you may consider starting a business entity to protect your identity and for tracking your expenses to offset the revenue that will be reported on your 1099-K. It will be for the gross amount and will not include a reduction for their fees. 

If you feel this affects you, please get advice from your trusted accountant or qualified tax professional.

IRS Article: http://www.irs.gov/govt/fslg/article/0,,id=226894,00.html

Categories: 1099, Business, Taxes Tags: , , , ,