The IRS 1099-MISC form could be the single most important – and annoying – piece of paper you’ll have to deal with this year. Payments totaling $600 or more to an independent contractor or landlord during the year, for such items as compensation for non-employees or rent, require that you provide the recipient with a 1099-MISC form. Then you must report all the 1099-MISC forms you have issued to the IRS.
The IRS has increased scrutiny on underreporting of income by small businesses, and the 1099-MISC form is one of their best weapons in the battle against underreporting of income. Almost every business in America has dealings with small, independent businesses that fall into the 1099-MISC category, and the IRS is using people like you to help catch people who are not reporting all of their income.
In general, you are only required to issue a Form 1099-MISC to an individual or an unincorporated business. If the payee qualifies, you must secure a valid Social Security number or tax ID number, as well as a valid address. This may prove to be tricky, as some people who are self-employed prefer to remain anonymous in the eyes of the IRS.
For the most part you’ll need to issue 1099-MISC forms to smaller businesses or individuals who provided you with services. A Form 1099-MISC does not need to be filed for the purchase of goods, but only for payment for services or rent.
Typical examples are professional fees paid to an independent contractor or partnership, such as an attorney or accountant; money paid to independent businesspeople such as cleaners, plumbers, painters or website designers; and rent paid to a landlord.
If you made the payments of more than $600 you must provide the vendor or supplier with a 1099-MISC form, then file the 1099-MISC forms and submit a report (Form 1096) with your tax return summarizing your 1099-MISC payments. Otherwise you can expect a letter from the IRS, and possibly a penalty.
The penalties for failure to file information returns such as 1099s are as follows:
- $30 per information return if you correctly file within 30 days past the due date (by March 30 if the due date is February 28)
- $60 per information return if you correctly file more than 30 days after the due date but by August 1
- $100 per information return if you file after August 1 or you do not file required information returns
- If any failure to file a correct information return is due to intentional disregard of the filing or correct information requirements, the penalty is at least $250 per information return
- Failure to furnish correct payee statements is $100 per return, although the penalty is reduced to $30 per return for failures corrected within 30 days after the due date and reduced to $60 per return for failures corrected on or before August 1
The laws for filing Form 1099-MISC and associated reports are complicated, and are being watched closely by the IRS. We urge you to call the Gray, Gray & Gray Tax Department at (781) 407-0300 with any questions you may have.