As part of the year-end closing process, we generally get asked a ton of questions regarding 1099 filing requirements for hiring contractors. Here are some answers to some of the most frequently asked questions we get regarding 1099s, filing requirements, and related topics.
Accounting Best Practice for Requesting W-9
Keep in mind, our general guidance is to always ask a new vendor for a W-9 regardless of the known entity status or if you plan to pay this vendor less than the IRS threshold of $600 per year. This is the best practice so you have the information on file and can confirm the status and any filing requirements on your end. Our recommendation is to request this W-9 from your vendor prior to sending your first payment. You are much more likely to receive the W-9 if you let them know you are ready to pay them but are waiting to send payment until you have the required paperwork for “onboarding.” It can be difficult to try to get a W-9 from a vendor at year-end when you are up against a January 31st deadline as there are so many other priorities at this time of year.
1099 FAQs
Do I need to file a 1099 for an S Corp?
The IRS rule is that you do not need to send a form 1099-NEC or form 1099-MISC to an incorporated entity, whether it is an S corporation or C corporation. This is because S corps or C corps are considered separate legal entities. You will need to file a 1099 for a single-member limited liability company (LLC), partnership, or a Sole Proprietor.
Who is exempt from filing a 1099?
Any payments made to corporations are exempted from sending form 1099-NEC or form 1099-MISC. The exemption also includes payment to LLC, individuals, or partnerships that elect to be taxed as an S corporation or C corporation through form 2553 or form 8832.
Do I need to file a 1099 for a C Corp?
The IRS rule is that you do not need to send a form 1099-NEC or form 1099-MISC to an incorporated entity, whether it is an S corporation or C corporation. This is because S corps or C corps are considered separate legal entities. You will need to file a 1099 for a single-member limited liability company (LLC), partnership, or a Sole Proprietor.
Do I need to file a 1099 for payments made via credit card?
Payments made via credit card are exempt from amounts that need to be reported in form 1099-NEC and form 1099-MISC.
Are 1099s mandatory?
A form 1099-NEC is used to report non-employee compensation (sums paid to individuals or contractors that are not w-2 employees within your company) to the Internal Revenue Service (IRS) if your payments to this vendor exceeds $600 in the calendar year. Businesses are required to issue 1099s to taxpayers that are not incorporated. The penalty for not filing and issuing 1099s to any vendor that exceeds $600 throughout the year can be up to 25% of the total amount received by the vendor.
Have more questions regarding 1099s?
Reach out for a consultation or to let us know what other questions you might have – we’d love to make this FAQ on 1099s more comprehensive using your feedback.
