Updated January 3, 2023
Disclaimer: I love you all, but none of this is tax advice. It's tax infotainment. Please make sure to check in with your tax professional.
So what's up with issuing those 1099 forms?
A 1099-MISC form is used to report certain types of payments made in the course of a trade or business. However, in 2020 the IRS reintroduced a form called the 1099-NEC. Which has essentially split the 1099-MISC into two forms.
Simple put: The 1099-MISC is for miscellaneous service payments and the 1099-NEC is for non-employee compensation.
Kind of confusing, right? Let’s break it down.
If you're a small business owner or sole proprietor who has hired the services of an independent contractor or freelancer and paid them over $600 for their services, you may need to file and submit the 1099-NEC form to both the Internal Revenue Service and the person or business that you paid. The 1099-MISC will be used solely for miscellaneous charges that differ from non-employee compensation. We’ll explain what this means later on.
Regardless of the type, 1099 forms get sent to the person who performed the services AND to the IRS.
Did you get all that?
Don’t worry: we’ll walk you through everything you need to know about who gets a 1099 form later.
If you don't file these forms, it can result in significant fines from the Internal Revenue Service (IRS). To determine whether you need to file a 1099 form in general, there are a number of questions to ask about the relationship with a contractor, and amount paid over the course of the previous year.
Let's talk about how to determine who gets a 1099, the changes to the two forms, and then how to file the damn things.
1. Only Businesses Need to Issue a Form 1099
Only your business - this includes your sole proprietorship - is required to issue a 1099-MISC or 1099-NEC.
You don't need to issue a form 1099 for any services that were for personal use.
For example, let's say you paid a housekeeper a total of $800 for personal house cleaning services in 2021. You don't need to issue your housekeeper a form 1099.
Your business must file a form 1099 with the IRS and to each unincorporated business or individual to whom you paid $600 or more during a given tax year.
For example, your sole proprietorship hired a graphic designer and paid them $1,200 for a logo design. You must issue the designer a 1099-NEC.
If you receive over $600 in rent payments for renting out a portion of your office during the year, you’ll need to file a 1099-MISC, not a 1099-NEC.
Another great example of who would need a 1099-MISC is if you paid a public speaker to speak at a company event and you paid them $6,000 for their service. It’s these types of one-off charges that the 1099-MISC will be utilized for when you’re wondering who do I send a 1099 to.
Fun fact: The 1099-NEC was originally introduced during the 1980s. However, shortly after, the IRS added a box on the 1099-MISC that eliminated the need for a 1099-NEC.
2. What's the Total Amount You Paid the Person or Company Over the Year?
Determine the total amount of money you paid the person or company over the year. If you made payments of $600 or more for services, not goods, you must issue a form 1099-NEC.
If you paid a contractor less than $600 for the year, you don't need to send them a form 1099.
Now with the new changes to the 1099 form, things look a little differently on the 1099-MISC.
You only need to file a 1099-MISC if you paid a non-employee more than $600 in the following:
Rent payments
Prize or award money
Medical payments
Section 409A referrals
Non qualified deferred compensation
More than $10 in royalty or broker payments
Fish for sale or fishing boat charges
We could keep going, but the best way to put this is the 1099-MISC are true miscellaneous payments now. If you paid anyone that wasn’t an employee over $600 in miscellaneous charges or more than $10 in royalties, you’ll need to fill out a 1099-MISC.
In addition to the miscellaneous charges over $600, you’ll also want to use the 1099-MISC to report income from products you sold to a reseller for resale if it’s over $5,000. If you’re reselling to an established retail company, you don’t need to report this on the 1099-MISC.
We know this may seem a little confusing.
The introduction to a new type of 1099 may complicate things a bit when it comes to who gets a 1099. If you aren't sure if something goes on a 1099-MISC or a 1099-NEC, we always recommend reaching out to your tax professional.
3. What's Your Relationship Status with Who You Paid?
Your relationship with the company or person will help determine who gets a 1099 form.
Typically, you need to supply a 1099 to independent contractors, third-party accounts, third-party public-relations firms that are not on your regular payroll, janitorial services, or any other company or worker that you paid for services that are not on your payroll.
An employee fills out a form W 4 when you hire them and they get paid via payroll. They receive a W2 form and not a 1099.
4. You Must Send a Form 1099 to Your Attorney
If you paid your attorney for any legal services, you must issue them a form 1099-NEC. However, if you're making payments to attorneys for legal services that aren’t fees, you’ll fill this out on the 1099-MISC.
5. Corporations Don't Receive a Form 1099
So any company that is legally an S-Corp, C-Corp or an LLC taxed as an S-Corp do not require a form 1099.
All you have to do is ask them. For example, what prompted this blog post was someone asking me if they needed to send me a 1099 for consulting work I did for their business. Since The Hell Yeah Group, Inc. is an S-Corp, none of our clients are required to send us a form 1099.
S/O to all our clients reading this and quietly freaking out about whether or not they needed to send us a 1099 and then feeling calm because they realized they didn't need to. You guys know I wouldn't do you like that. But I digress.
Companies that are sole proprietors, partnerships or LLCs who received at least $600 from your company should receive a 1099-NEC from your business.
6. When In Doubt, Fill It Out
With the recent changes, it never hurts to play it safe. File a 1099 if you are unsure. If you file one but did not need to, there is no harm done. However, if you fail to file one and one was required, you might be penalized heavily.
7. How To Issue 1099 Forms
You can ask your accountant or bookkeeper to file your 1099 forms on your behalf. We can help you too.
Alternatively, Quickbooks Online and Xero both have the option to file the 1099 forms directly from the software. And a major bonus to using Gusto for both payroll and to pay contractors, 1099 forms automatically get issued.
8. Why do I need to send 1099s?
Think of a 1099-NEC or 1099-MISC as a receipt. This is the best way the IRS can track your expenses and ensure you’re actually paying them correctly. It’s your job to make sure you’re filling out the form accurately and keep track of your payments throughout the year.
9. Mind the Deadlines
Of course there are deadlines for when all of these things are due. And of course it's your own damn responsibility to keep up with all these deadlines.
Remember there are two forms that need to be filed. One form 1099 needs to be issued to the person or company and another one needs to be filed with the IRS. This applies to both the 1099-NEC and 1099-MISC. But don't worry, these days any service you use will go ahead and submit the forms to the IRS via efile for you.
Disclaimer: Please check with your accountant on the deadlines and fines. Typically, you’ll want to file your 1099s and have them delivered to recipients by January 31 so they’ll have them in time to file taxes.