A 1099-Misc or 1099-NEC is used to make sure there’s a paper trail for payments that aren’t made using a credit card or other third-party processor.
They’re basically a really formal receipt that tells the IRS, “hey, I paid this person/company this much” and the IRS is like, “okay, cool, we’re going to mark it down on your end as an expense and on the vendor/recipient’s end as income.” It’s a common misconception that it’s only necessary to file 1099-Misc or 1099-NEC forms for subcontractors that do not have an LLC. This is not true.
EDIT FOR 2020: 2020 is the first year that the IRS is re-introducing 1099-NEC forms. These forms will replace filing a 1099-MISC with an amount in Box 7 for Non-Employee Compensation. Please simply think of the term “1099-NEC” as being interchangeable with 1099-MISC form with Box 7, throughout this post.
Types of Vendors that Need to Receive a 1099-Misc or 1099-NEC
- An individual or LLC (that is not taxed as a corporation*) that provides services for your business in excess of $600
- An attorney or law firm that provides services for your business in excess of $600 – regardless if they’re a corporation or not
- An individual or LLC (that is not taxed as a corporation*) that you pay rent to in excess of $600 (home office doesn’t count, you don’t need to issue a 1099 to your landlord) – keep in mind, rent can be more than just real estate, it can be rental fees for equipment, too!
*the only way you will know if this LLC is taxed as a corporation or not is if you get a copy of their W9
- Even if a vendor meets the criteria above, if you paid them with a credit card or via PayPal for Goods and Services (not Friends and Family), you do not need to issue a 1099-Misc form to them, since there is already a paper trail. Depending on the volume of their business, they may be receiving a 1099-K from the merchant company that processes their payments.
- This does not include payments made via Venmo/CashApp, since those methods are not meant to be used for business purposes
- Even though Zelle is okay to use for business, it still doesn’t fall under the category of “third party payment processors” and a 1099-Misc will need to be issued
- If you issue a 1099-Misc for payments you’ve paid for via credit card/PayPal, you’re essentially double-counting this income for the recipient
- If you’re making payments for physical goods, you do not need to issue a 1099-Misc form as the form is only used for payments for services
- You do not need to issue a 1099-Misc for any payments made in the course of your personal life, it’s only for business purposes
What If I Don’t File Them?
If you don’t file a 1099-Misc form and you’re audited, there’s a chance that the IRS could disallow your deduction – even if you have proof that you paid this vendor. You can also be penalized for not filing the forms.
Still Unsure? Check out this flowchart we created!
How to File 1099-Misc Forms Online
Once you’ve determined which vendors will need a 1099-Misc form from you and you’ve acquired their W9s, you can easily file the forms yourself online.
We love using Track1099 – it’s really simple and more affordable than using QuickBooks for 1099-Misc filing. The software will email a copy of the form to each vendor/recipient (if you enter an email address), or mail a physical copy for a small additional fee. You are also able to print and mail them yourself. Track1099 will also e-file them with the IRS on your behalf (this is the super important part!). Once you’ve created an account with Track1099, a basic outline of the steps are below:
- Add yourself or your business as a payor
- Take the info from your vendor’s W9 and enter it into the software, one by one, as a new recipient. You’ll enter the amount you paid them in the appropriate box, depending on the type of payment(s) made.
- Review your information for accuracy
- Schedule the E-Filing with the IRS
- Have Track1099 send the forms out to your vendors
- Download a copy of the 1099’s for your records (your accountant will likely ask for a copy!)
- Relax! You’re done.
For this upcoming tax year, try acquiring W9s from vendors before you pay them, even if you don’t think you’ll pay them $600. You just never know which vendors will cross the $600 threshold and which ones won’t, so it’s wise to get a W9 form every new vendor you pay upfront.
Don’t forget that it goes both ways – you will likely also meed to fill out a W9 for your clients, too.
Please reach out, we’d love to help!
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Countless assumes no liability for actions taken in reliance upon the information contained herein.