I brought this up as a tax tip in last week's meeting, and here's an article with some more information you might find useful:
Article Highlights:
- 1099-NEC Filing Requirements
- Independent Contractor Filing Threshold
- Form W-9
- Form 1099-MISC
If you use independent contractors to
perform services for your business, for each one that you pay $600 or more for
the year, you are required to issue the worker and the IRS a Form 1099-NEC no
later than January 31, 2022, for 2021 payments.
For rental property owners, if you are
purely a landlord, and do not conduct any other business operations other than
being a landlord, you are probably exempt from filing 1099-NEC for your
independent contractors.
Generally, a 1099-NEC is also not
required to be issued if the independent contractor or service provider is a
corporation. However, payments to attorneys for legal fees of $600 or more must
be reported, even if the attorney operates as a corporation.
To properly complete the form, you’ll need the individual’s
name and tax identification number. Keep in mind that it isn’t unusual to, say,
hire a repairman early in the year to whom you pay less than $600, and then use
the repairman’s services again later and have the total for the year exceed the
$600 limit. If you overlooked getting the information, such as the individual’s
complete name and tax identification number (TIN), needed to file the 1099-NEC
for the year, you may have difficulty getting the information after-the-fact.
Therefore, it is good practice to have individuals who are
not incorporated complete and sign the IRS Form W-9 the first time you use
their services. Having properly completed and signed Form W-9s for all
independent contractors and service providers eliminates any oversights and
protects you against IRS penalties and conflicts.
IRS Form W-9
is provided by the government as a way for you to obtain the data required to
file the 1099s for your contract workers and service providers. This data
includes the person’s name, address, type of business entity and TIN (usually a
Social Security number or an Employer Identification Number), plus
certifications as to the ID number and citizenship status, among others. It
also provides you with verification that you complied with the law should the independent
contractor provide you with incorrect information.
We highly recommend that you
have a potential independent contractor complete the Form W-9 prior to engaging
in business with them. The form can either be printed out or filled onscreen on
the IRS’ website and then printed out. A Spanish-language version is also
available. The W-9 is for your use only and is not submitted to the IRS. The
W-9 was last revised by the IRS in October 2018, so if you have older blank
W-9s that you give to your service providers, you may want to print copies of
the latest version (including the instructions) and discard the older unused
forms.
To avoid a penalty, the government’s copies of the 1099-NECs
must be sent to the IRS by January 31, 2022, along with transmittal Form 1096. For most small clients, they are filed on red optically scannable forms, but they may be optionally filed electronically. However, a larger business that files more than 250 information returns (such as 1099s, W-2s, and
1095s) in a calendar year must file them electronically. The 250-return
requirement is expected to be lowered to 100 if proposed regulations are finalized by the
IRS, but the change wouldn’t be effective until 2023.
In some cases, for payments of $600 or more, you may need to
file Form 1099-MISC, which is used to report rents, certain prizes and awards,
and income your business paid other than that includible on Form 1099-NEC or
payable to employees. The 2021 Form 1099-MISC must be provided to the income
recipient by January 31, 2022, and to the IRS by February 28 (March 31 if filed
electronically) accompanied by transmittal Form 1096.
Our firm provides 1099 preparation services. If you need
assistance or have questions, please give us a call at 817-343-0815.
