Two questions on the IRS business income tax return forms ask whether the taxpayer is required to file Form(s) 1099 and, if so, whether it will do so. This has prompted questions from our clients about the 1099 reporting requirements. Here is a brief summary of the major rules:
1. Only businesses (including nonprofits and sole proprietorships) are required to issue 1099s. Some rental properties may be treated as businesses for this purpose, but most are investment properties exempt from the 1099 requirements (this is somewhat of a grey area in the law).
2. The general rule is that a 1099-Misc must be issued by any business:
- to service providers — examples are independent contractors and subcontractors, attorneys, marketing firms, and other professionals (vendors such as suppliers, utilities and insurance companies are not service providers);
- that are paid a total of $600 or more during the year; and
- that file their income tax return as anything other than a corporation (such as an individual, a partnership, or an LLC that has not elected corporate status).
3. An exception to the general rule is that a 1099-Misc is required to be issued to any attorney paid $600 or more, even those that are incorporated.
4. A 1099-Misc must also be issued for payments of $600 or more of rent by a business to any non-corporate landlord.
So how do you tell if a 1099 is required? Your business should obtain a completed and signed Form W-9 from every service provider or landlord before it pays them! That form will give you all of the information you need to make the determination. If a 1099 is required, the W-9 will ensure that you have the recipient’s correct legal name and tax identification number.
There are additional 1099 rules that apply to payments of interest, dividends, royalties, and some other types of payment.
Please contact us if you have additional questions or need assistance meeting the 1099 reporting requirements.