- Learn about 1099-NEC filing requirements.
- Discover information about the independent contractor filing threshold.
- Find out why you should fill out a Form W-9.
- Learn about Form 1099-MISC and why you may need to fill it out.
Do you use independent contractors to perform services for your business? For each one that you pay $600 or more for the year, you must issue the worker and the IRS a Form 1099-NEC no later than January 31, 2022, for 2021 payments.
Generally, a 1099-NEC is not required to be issued if the independent contractor or service provider is a corporation. However, you must report payments to attorneys for legal fees of $600 or more, even if the attorney operates as a corporation. Fiducial has more information about 1099’s below!
Completing the 1099-NEC
To properly complete the form, you’ll need the individual’s name and tax identification number. Often people hire a repairman early in the year to whom they pay less than $600. Later in the year, they may use the repairman’s services again and have the total for the year exceed the $600 limit.
If you overlooked acquiring 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 obtaining 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. Collecting properly completed and signed Form W-9s for all independent contractors and service providers eliminates any oversights. It also protects you against IRS penalties and conflicts.
IRS Form W-9
The government provides IRS Form W-9 for a good reason. They do it 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). It also includes certifications as to the ID number and citizenship status, among others. In addition, it provides you with verification that you complied with the law should the independent contractor provide you with incorrect information.
We recommend that you have a potential independent contractor complete the Form W-9 prior to engaging in business with them. You may print the form or fill it out onscreen on the IRS website and then print it. A Spanish-language version is also available. The W-9 exists for your use only and you do not submit it to the IRS. The IRS last revised the W-9 in October 2018. Do 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.
How to file
To avoid a penalty, you must send the government’s copies of the 1099-NECs to the IRS by January 31, 2022, along with transmittal Form 1096. You must submit them on magnetic media or on optically scannable forms. However, a 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 may be lowered to 100 if proposed regulations are finalized by the IRS. However, 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. Taxpayers use this form 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. You must provide it to the IRS by February 28 (March 31 if filed electronically) accompanied by transmittal Form 1096.
Fiducial provides 1099 preparation services. Need assistance or have questions? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations to discuss your situation.