Jan. 31, 2024 is the deadline for submitting Form 1099s to recipients of certain payments your business made during the previous tax year. If you are a business owner, CFO, controller or responsible for your company's accounts payable department or tax filings, you may know that 1099s are an informational return that is required to be filed with the IRS and issued to recipients to report these payments. There is often some confusion about the 1099 process and related rules, and the Jan. 31, 2024 filing deadline sometimes sneaks up on companies.
1099 overview
Here are some high-level tips to ensure you are in compliance with your 1099 obligations. These tips will focus on the rules that apply to payments by accounts payable departments to vendors and service providers (partnerships, contractors and individuals) and not on other 1099 rules that apply to payments to investors for interest, capital gains or dividends they receive. Those rules are specific to the financial services industry and are usually handled by banks, brokerage firms or similar financial services companies.
The specific instructions for who must file are included on each type of 1099, of which there are many. The most common 1099 forms that impact companies' payments to vendors (such as through the accounts payable department) are the 1099-MISC and the 1099-NEC (Non-employee compensation). The 1099-MISC is used to report rent or royalty payments, payments for services performed for a trade or business by people not treated as its employees, certain payments of gross proceeds to attorneys, TV or radio show winnings, and other specific payments. The 1099-NEC is used only for contractors. See the IRS guide to information returns for more detailed information about the 1099-MISC, 1099-NEC and other 1099 forms.
What do I need to know about 1099s?
At a high level, an accounts payable department principally needs to know:
- Which vendors might need to receive a 1099 and;
- What triggers the need to send one, including the dollar threshold and types of services paid for.
Generally speaking, a good rule of thumb for determining who should receive a 1099 is that if they are not a corporation and not treated as an employee, then they should likely receive a 1099. For example, individuals and partnerships might need to receive a 1099, provided they meet the payment threshold.
If your vendor is a service provider and is a sole proprietor, contractor or partnership, then you should look to see if total payments to that vendor for services during 2023 were $600 or more. If so, you should send that vendor a 1099.
1099 exceptions
The following types of payments do not require a 1099:
- Payments for services to persons treated as employees
- Payments to corporations (with the exception of payments for legal services - those need to be reported even if paid to corporations)
- Payments for merchandise, telegrams, telephone, freight, storage and similar items
- Payments of rent to real estate agents. However, the real estate agent must use Form 1099 to report the rent paid to the property owner
- Payments made via credit card. Merchant card companies will report those payments to the IRS on a special form, 1099-K
How and when do I file my 1099s?
The deadline for distributing 1099s to vendors is Jan. 31, 2024. If you use paper 1099s, you must then file another information return, Form 1096, to transmit the 1099 information to the IRS by Feb. 28, 2024. If you use an authorized provider of electronic 1099 transmission, no Form 1096 is required and the due date for eFiling is March 31, 2024.
What is the penalty for failing to file 1099s?
Specifically, not providing a correct statement (intentional disregard) carries a penalty of $270 per 1099, with no maximum for the year. Penalties for failing to file 1099s or filing them late are as follows:
- $60 per 1099, if you file within 30 days of due date; a maximum penalty of $220,500 for small businesses
- $120 per 1099, if you file more than 30 days after the due date but by Aug. 1, 2024; maximum penalty of $630,500 for small businesses
- $310 per 1099, if you file after Aug. 1, 2024; maximum penalty of $1,261,000 for small businesses
What can I do to make the 1099 process less painful in 2024?
It’s not too late to clean up data by Jan. 31, 2024 to improve your 1099 situation. Here are a couple things you can do to make your 1099 process easier for the current tax year:
- Make sure you have a W-9 on file for all your vendors. A W-9 is a form you are required to get from the vendor before any payments can be made to them, and it includes key information like their federal tax ID number and the type of entity they are, which you will need to determine if they get a 1099.
- Consider using an electronic filing service such as .tax1099.com. They can automate a lot of the process for you, save you from having to buy, print and mail paper 1099 forms, and help you avoid having to file a Form 1096. If you do decide to use an electronic service, you'll need an e-mail address for every vendor who will receive a 1099, so allow enough time to gather that information.
Baker Tilly’s 1099 Automation and e-Filing product
Baker Tilly’s 1099 Automation and e-Filing solution is a live integration tool that integrates data between Sage Intacct and 1099.com, saving you time on filing your 1099s each year. Our 1099 Automation and e-Filing software provides data validation to help identify missing data and improve 1099 accuracy.
If you'd like to see how 1099s are handled with Baker Tilly’s 1099 Automation and e-Filing solution, watch our on-demand webinar.
You could also consider outsourcing your accounts payable function. Firms who provide outsourced accounts payable usually will help you with the 1099 process as well. If you would like to learn more about how Baker Tilly can assist you with the 1099 process or provide outsourced accounts payable services, contact us today!
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.
