Filing 1099s for 2023- Who Gets One?

It’s almost 1099 time of year again! But what does that mean and who should pay attention? Read on to find out!

First, if you don’t remember from the last couple years, the IRS came up with a new form- the 1099-NEC. For the last hundred years it was the 1099 MISC but then they decided, because 2020 wasn’t nuts enough, they’d change the form millions of people get issued each year to report their non payroll income.

The 1099-NEC is the form that will be needed to report independent contractor payments for calendar year 2023. NEC stands for Non-Employee Compensation and Form 1099-NEC is taking the place of what used to be recorded in Box 7 of Form 1099-MISC.

This new 1099 form is what 99% of people filing 1099s are going to use, since the other form and boxes are generally for pretty obscure and rarely applicable circumstances.

So who gets a 1099-NEC? Typically, this form is issued to independent contractors, janitorial services, third-party accounts and any other worker paid for services who is not on your payroll and not your employee.

Here is a handy guide to start with on who gets one, and then we can dive into the details:

1099 Decision Tree

But let’s look at the details, since they do matter!

The payment is $600 or more for services—not physical products.

The first rule of thumb is that the payment must be at least $600. If it’s less than that amount, a 1099-NEC is not required and should not be issued.

Services performed are for business purposes.

Say you contract with a worker to remodel your office break room. The total comes to $5,000. You would likely issue a 1099-NEC in this case. But let’s say you contracted that same worker to remodel the kitchen in your home. Do you need to issue a 1099-NEC? The answer is no, because the kitchen remodeling was for personal, not business reasons.

In general, you don’t have to issue 1099-NEC forms to C-Corporations and S-Corporations.

It’s a common belief that businesses don’t need to send out 1099-NEC forms to corporations. And this is true. Sometimes.

In general, you don’t have to issue 1099-NEC forms to C Corporations and S Corporations. But there are some exceptions, including:

  • Medical and health care payments
  • Payments to an attorney
  • Substitute payments in lieu of dividends or tax-exempt interest

You contract with a business that is an LLC sole proprietorship.

You will need to send out a 1099-NEC form if you’re working with an LLC sole proprietorship. An easy way to tell? Just look at the W-9 the worker provided. If the W-9 indicates they are an LLC that is taxed as a sole proprietorship, you need to send a 1099. If their LLC is taxed as an S- or a C-Corp you do not (unless an exception applies as described above).

They are in the US

1099s are reporting for US tax payers, so none of this applies if you are talking about contractors you paid who are outside the US and not US citizens or tax payers, which is often the bulk of outsoured service providers these days.

You are paying them directly.

If you pay them via a check, cash, or other direct payment (such as Paypal, Zelle or Venmo) then you would need to issue them a 1099. If you paid them via a credit card then they will not need one as their merchant account (their credit card processor) will issue them one. Same thing if you hired a freelancer through a service like Fiverr or Upwork- those platforms will issue a 1099 for ALL the payments that contractor got through the platform so if you issue one as well their income will be double counted.

Does all this sound confusing? It can be. But we can help. Let us know who you aren’t sure about and we can help you tell if you need to issue one or not.

If you do need to, then send a W9 form to each person you will need to send a 1099 to and ask them to complete it and return it. This is the form that provides you with the info you need to be able to issue them one. It includes their name or business name, address, business entity type (sole prop, LLC, corporation, etc) and their EIN or Social Security number. Without this info you won’t be able to file.

Deadlines and Penalties

The deadline for filing this is January 31. If this day falls on a weekend then it is the Monday after. In theory, if you file late, you can get a late filing penalty, although over the years I have yet to ever see a client get one. So while you should file on time, if you miss a few or miss the deadline by a couple days, don’t panic. Unlike most of the rest of the IRS deadlines, this one doesn’t seem to be a priority for enforcement. My suggestion is to file, even if you are late- better to file late than never.

What’s the risk of not filing? The 1099 is your “receipt” that you in fact paid someone for services and didn’t just make up some expenses to lower your tax bill. If you don’t file the 1099 and the IRS decides to audit your expenses, it’s possible you could be responsible for paying taxes on that amount you didn’t report you paid the other person. It doesn’t happen often, but you don’t want to be in the position of paying more tax than you should because you didn’t file that simple little form!

If you have questions or need help filing this year, just let us know!

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