Do I Need To Issue A 1099-misc To A Vendor Who Provides A Subscription Service?

As is the case every year, nosotros're hearing from lots of folks dislocated near when to send a 1099 class or other "information returns" to someone. It is true that over time, these forms have continued to change, and the rules accept become more specific… simply the nuts remain the aforementioned. The most of import indicate is that only businesses need to effect 1099s — if you paid someone for personal purposes, you are not (yet) required to send them or the IRS a Class 1099.

Here's a crash course for each type of class, followed by an FAQ.

1099-NEC
This grade was new for 2020 and replaces the old Box 7 of Form 1099-MISC. "NEC" stands for "non-employee compensation". It is due to recipients and the IRS by January 31st (or the commencement business twenty-four hour period afterward that, if 1/31 falls on a weekend).

If you paid:
1) a Non-corporation (*see below);
ii) for services (not products);
iii) via check, cash, ACH, or wire transfer — merely non merchant services or electronic payments (such as credit & debit cards, PayPal Business, Venmo Business concern (**come across below) — and starting in 2022 Zelle/QuickPay, CashApp, personal Venmo & PayPal);
four) $600 or more than in a calendar year;
so you need to send them a 1099-NEC.

(*) A lot of folks get confused and retrieve the rule is if you lot paid an "individual," but really the rule is a "not-corporation," which means that partnerships and LLCs are included. Just considering they have a business name doesn't hateful they're incorporated. You cannot depend on the company's name to determine corporate condition, nor can yous rely on the state LLC/Corp database, every bit it only indicates the entity type at the state level — virtually any type of entity may elect corporate status with the IRS.

And so, go along in mind that a company can be an LLC simply exist taxed as a corporation. In this case, you would not need to send them a 1099, because in the eyes of the IRS, they are incorporated. Here's an case of a W-9 showing an LLC that is taxed as an Southward-Corp:

This is one of many reasons you should collect Class Due west-nine from all service vendors before giving them their first check, just to be safe. The person filling out the W-nine will indicate their entity blazon and whether or non they are taxed as a corporation.

At that place'southward also an exception to the incorporation dominion for attorneys and law firms. Yous must issue a 1099 to a lawyer or police firm regardless of whether they are incorporated. (Law firms and attorneys have so many specialized 1099 issues, they become their own blog post.)

(**) There's a lot of confusion over Venmo and PayPal, because in that location are personal-utilize "Friends & Family" versions too as business versions of both platforms. Legally, no business organization should be using the non-business versions of these payment types… but in real life, many practice. It'southward very hard to distinguish which payments were made using which method — in theory, a 1099-NEC would need to be issued to a vendor who was paid via a personal Venmo or PayPal method, only I'1000 not sure how this would be tracked. My recommendation (for many reasons) is to only use the business concern versions, and then the 1099-NEC is a non-issue (considering Venmo and PayPal will issue a 1099-K instead). Information technology too sounds like, starting in 2022, even the personal versions of these programs will be required to upshot a 1099-Grand if $600 and over.

I know, that'southward all very confusing. Hither's a nice decision-tree provided by our friends over at Bookkeepers.com, courtesy of Accounting Buds.

1099-MISC

Items such as rent payments, royalties, attorney settlements (as mentioned above, not payments for legal services), and medical healthcare payments will still exist reported on Grade 1099-MISC , though the course has been redesigned and the boxes renumbered.

Report prizes and awards of $600 or more that are not for services performed in Box 3. Include the fair market value of merchandise won. And be careful here, as it is easy to accidentally include these on Form 1099-NEC if the recipient also provided unrelated services.

Rent paid ($600 or more than) (Box i)
Royalties paid of at least $ten or more (Box 2)
Prizes and awards and sure other payments ($600 or more, encounter instructions for Class 1099-MISC, Box iii for more information)
Backup withholding or federal income taxation withheld (any corporeality) (Box 4)
Amounts paid specifically to physicians, physicians' corporations, or other suppliers of wellness and medical services ($600 or more than) (Box 6)
Direct sales of at to the lowest degree $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail institution (Box 7)
Gross proceeds paid to an chaser ($600 or more whether or not incorporated) (Box ten) – "made to an attorney in the course of your merchandise or business concern in connection with legal services, but not for the chaser's services"; for case, a settlement agreement.

The borderline for providing this class to recipients is the aforementioned as above, Jan 31st. All the same, the deadline for filing 1099-MISC with the IRS is February 28 if filing on paper, and March 31 if filing electronically.

1099-One thousand

It'south unlikely that anyone reading this will be in the position of issuing Course 1099-K to vendors — simply you should know near this form, for a few reasons:
1) You are likely to receive one.
ii) Information technology's the reason you don't have to outcome 1099-NEC to anyone y'all pay via credit card/debit carte, Zelle, QuickPay, a business PayPal business relationship, or a business Venmo account.
three) You may need to reconcile this form against the amount of sales income you report on your revenue enhancement return.

Form 1099-K is for payments made in settlement of "reportable payment transactions", which is any credit card, payment card or third-party network transaction. So if you receive payments in this fashion (unless you only accept checks, e-checks, ACH, or zelle/QuickPay, you probably do), then you'll get a 1099-Grand for this total.

But because these amounts are reported to the IRS for you, you don't need to effect 1099-NEC or 1099-MISC forms to vendors whom you paid using i of these methods. In that example, the recipient could end up having the aforementioned income reported to the IRS twice.

The dominion used to be that this form was issued to anyone who had more than 200 transactions or $20,000 worth of transactions — but starting in 2022, that threshold will drop to merely $600.

Every bit a bookkeeper, accountant or tax preparer, information technology'south important to protect your small business organisation clients by making sure all taxable income is being reported on their books/returns. If the 1099-K is for an corporeality that is lower than what'southward on the income section of the Profit & Loss, it'due south not probable to exist an event. But if it's college, you'll demand to exercise a reconciliation to bear witness that the divergence was due to not-taxable receipts such every bit sales taxes collected, tips nerveless, refunded sales, and the like.

1099-INT

This class is issued to anyone who lent your business organisation money, and your business paid them at least $ten of interest in the past calendar year. It includes owners, partners, and shareholders.

Note: practise not upshot this course for accrued interest; it is just for actual payouts of interest in cash or trade.

The class is due to recipients past January 31 (February 1 in 2021), but isn't due to the IRS until March 1 if filing on paper and March 31 if e-filing.

If not e-filing, you lot tin utilize the IRS'south make full-in pdf Copy B for the recipient copy, but for the version that goes to the IRS, you have to gild an official form with special scannable ink — they're free, just they take a while to be mailed, so fill out your asking early. Make sure to mark the year you are filing for, not the current twelvemonth — an like shooting fish in a barrel mistake to make.

Another notation: I accept had clients reach out confused by the language "You are not required to file Class 1099-INT for interest on an obligation issued past an individual". This means if the loan wereTO an individual rather than FROM i, and the individual paid interest to the company. (This is non usually the case.) In that state of affairs, the individual would not have to issue the company a 1099-INT (although the company would yet have to declare the interest income).

1099-DIV

This form is issued to a shareholder of a C-Corporation for dividends or other distributions paid in the past agenda year.

Nigh folks don't think this applies to them — but if you own a business that is taxed as a C-Corp, and you took money out that wasn't W-2 or loan repayments, then you lot may accept issued yourself dividends. (And if it was for a loan repayment, did you pay the required corporeality of interest? If so, run into the "1099-INT" section above.)

The course is due to recipients by January 31 (February 1 in 2021), just isn't due to the IRS until March 1 if filing on newspaper and March 31 if e-filing.

If not due east-filing, you can use the IRS's backup pdf Copy B for the recipient copy, but for the version that goes to the IRS, yous have to social club an official grade with special scannable ink — they're free, but they take a while to exist mailed, so fill out your request early. Make sure to mark the twelvemonth yous are filing for, not the current year — an easy error to make.

1098

This grade is to report mortgage involvement and real estate taxes. You may non think information technology applies to you, but if you practise the bookkeeping for or are a member of a housing cooperative, you may find that it does. This needs to be issued to housing co-op members for their allocated portion of mortgage interest and real estate taxes paid by the cooperative, and so they tin deduct them on their personal tax return, Form 1040, Schedule A. If not e-filing, you tin can use the IRS's fill-in pdf Copy B for the recipient copy, but for the version that goes to the IRS, you have to order an official grade with special scannable ink — they're gratuitous, just they take a while to exist mailed, so fill out your asking early. Make sure to marking the year yous are filing for, not the current year — an easy error to make.

Frequently Asked Questions

What do I do if the vendor will not give me their Revenue enhancement ID Number, which I need to file the 1099?

Commencement off, it's the business' responsibility to obtain this number. That'southward why I recommend getting the W-9 from the vendor before giving them their commencement payment. But in the case where it'due south 1099-time and you still don't have that TIN for some reason, respectfully let the vendor know that non having their info volition non forbid you from filing the 1099. It just means the IRS will receive it with "REFUSED" written in the field where the number should exist (or if you lot use an due east-filing program, you will check the box that the number is unavailable). This volition almost always trigger an inspect for both the concern and the recipient, which no one wants. Presented with this information, I find that almost non-compliant vendors are suddenly able to fill up out that W-9 form after all.

Practise I really have to send one to my landlord? They get angry when I bring information technology up.

If your landlord is not incorporated, aye, you do. If it makes them mad, and then consider why… are they trying to avoid declaring it as taxable income? Is that the type of person you want to rent from?

What if you forgot to issue a 1099 to someone?

It's never too late! Since the statute of limitations never starts if yous don't file a return, penalties and interest can continue to accrue forever. If you noticed that you lot forgot to file a 1099, fifty-fifty for a prior yr, reach out to the recipient in question and make certain they alleged and paid taxes on the income yous inadvertently forgot to remind them near — and hopefully they have. In this instance, no amended return will be required on their end, and the form's arrival volition non come equally an unwelcome surprise. If not, and then that'south a bigger business organization. It is the responsibility of each recipient of income to declare it on their return, regardless of having received the 1099. Not getting the grade does not exempt a taxpayer from declaring the income they earned. So, the business owner needs to evaluate the take chances involved to their company in knowingly refusing to comply with taxation police, versus the recipient's want to evade taxes.

What exercise you practise if yous receive a 1099 that is incorrect or unnecessary?

If you lot receive a 1099 that has wrong information on it, just reach out to the issuer to inquire for a corrected 1099. Exercise this as soon as possible, as it volition help them to set up it earlier it is submitted to the IRS.

If they will not correct the total, so declare the full amount on your taxation return, only "back out" the incorrect amount as a negative, with an explanation to the IRS for why this corporeality was inaccurate. If yous receive an inspect notice, provide the IRS with the documentation showing why your calculation is correct, and the support showing you reached out to the issuer when you realized the form was not correct.

If you should not have received a 1099 at all, follow the same communication as above. A expert instance of this would be if you lot received a 1099-1000 for credit card payments, only also received a 1099-NEC from the company that paid you (this is quite common… it is extremely challenging in near bookkeeping software to distinguish how a bill was paid in nigh reports). In this case, if the customer will not void the 1099 form for some reason, simply declare the full amount on your business' tax return and "back out" the amount that was double-issued, with the explanation that it was already declared in income via 1099-K or some similar wording.

However, if the reason you lot should not have received the 1099 was that yous are taxed equally a corporation, and you lot've already declared this income on your revenue enhancement return, and so you can ignore the form — it will have no effect on annihilation and was only a waste of fourth dimension on the part of the issuer.

How practice I run the 1099 report in QuickBooks? Won't information technology tell me who needs a grade from my company?

Most accounting professionals don't utilise the 1099 report that QuickBooks generates — information technology'due south as well prone to user error when setting up the vendors, accounts, and dollar-thresholds. Instead nosotros run the detail of the cash accounts and filter past transaction type – Check, Expense, Beak Payment… and then sort past Name. The problem may be that there is not a name in there, or it is not a Vendor Proper name: another dandy reason to make sure you're setting up bank rules and being careful about information entry to include vendor data on all transactions.

How does PayPal work?

Oh my goodness, is this ever complicated.

If you pay a business using your personal banking concern or Paypal account, or pay through "Friends & Family" PayPal yous exercise need to transport a 1099 (if over $600), because PayPal thinks this was a personal transaction — because, every bit I mentioned at the top of this post, personal transactions exercise not require 1099 forms. If yous had used "Business" PayPal, then PayPal would transport the 1099-1000 and there would be no reason to issue a 1099-NEC.

A colleague of mine recently called PayPal support nearly this and here was their response:
If the transaction detail says "money sent", those authorize as Friends & Family transactions. Even so, if the transaction says "invoice paid" or "payment", and so it is a business organisation payment — fifty-fifty if it's within a personal Paypal account.

What about Venmo?

According to Venmo's term of service, using information technology for concern is a violation, and they tin can seize whatever money yous have sitting in your Venmo business relationship if they catch y'all using it for concern.

Nevertheless, we know sometimes this is the all-time mode to collect money from folks, or that customers will send y'all Venmo funds without thinking about it, or that you'll do the same with your vendors.

Venmo is considered a "peer-to-peer transfer service", and not a third-party network. Therefore, treat these like cash payments from a business and ship a 1099 form to your vendor.

(Side annotation: Venmo is starting to have applications from a number of businesses for a new "Business organization Venmo", but it's brand new and very limited. Be careful with this. The problem with Venmo, PayPal, Bento, and other similar companies similar that is that they don't act like they're banks — and their staff doesn't realize that banking is actually the master office of the company they piece of work for — they don't get the aforementioned kind of intensive training that bankers do. I recommend avoiding Venmo for business payments equally much equally possible.)

What well-nigh united states?

Okay, this gets pretty overwhelming pretty fast, so I am linking to a site that has all the states' rules in one place — https://www.taxbandits.com/state-filing-requirements/

The brusque version here is that not all states have the aforementioned rules. Some allow the IRS filing of certain information returns to substitute for state filing requirements, and some don't. Some require east-filing and some allow physical mailings. In past years, the IRS offered state-filings with the 1099-MISC, but didn't bring that into the modernistic era when they released 1099-NEC. So please, do your homework when information technology comes to state filings.

Where tin can I notice more info on due dates, penalties, and real-life scenarios?

Bank check out my colleague Mark Kohler'southward excellent web log mail. His charts for deadlines and penalties are very handy.

And there you have it! Simple, see?

**many thanks to The Bookkeeping Buds for editing assistance**

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