The 1099 miscellaneous is one of the most common tax forms. So who gets one? Typically, this form is issued to independent contractors, janitorial services, third-party accounts and other workers paid for services who are not on the payroll.
But like many IRS regulations, it’s not quite so simple. But there are some helpful guidelines to determine whether a 1099-MISC is needed.
- Is the payment more than $600? The first rule of thumb is that the payment must be at least $600. If it’s less than that amount, a 1099-MISC is not required and should not be issued.
- Is the payment for services? A 1099-MISC is used to report monies paid for services — not physical products.
- Is the service performed for business purposes? If the payments were for personal services, you don’t need to file a 1099. For example, Say you contract with a worker to remodel your office breakroom. The total comes to $5,000. You would likely issue a 1099-MISC in this case. But let’s say you contracted that same worker to remodel the kitchen in your home. In this case, you don’t’ need to file a 1099-MISC because the kitchen remodeling was for personal, not business reasons.
Working with S-Corps, C-Corps and LLCs
It’s a common belief that businesses don’t need to send out 1099-MISC forms to corporations. And this is true… sometimes.
In general, you don’t have to issue 1099-MISC 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 can read about other exceptions here.
If you contract with a business that is an LLC sole proprietorship, you will need to send out a 1099-MISC form. An easy way to tell is by looking at the Form W-9 your 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).
When in Doubt
If you’re unsure, it’s always best to file a 1099-MISC. There’s no penalty if you file one but you didn’t need to. On the other hand, not filing one that is required can lead to hefty penalties.
And one more tip: Always get the W-9 before you issue payments to any vendor who may be required to get a 1099-MISC. Less-reputable vendors might not be around when you need their information at tax time.
The Easy Way to Meet Your Requirements
The fastest, most efficient way to file your 1099s (and meet the January 31 deadline!) is with eFile4Biz.com. This one-stop shop allows you to easily enter your data online. Then eFile4Biz electronically files your forms with the IRS – as well as prints and mails copies to your independent contractors and other recipients.