New year is good time to review basic rules surrounding Forms 1099-MISC and W-9
January marks the annual period when most businesses complete Forms 1099-MISC, prompting a review of essential details about this standard reporting process. Generally, payments exceeding $600 made in the course of business to a non-corporate entity or individual must be reported as income on either Form 1099-MISC or Form 1099-NEC. Recipients of such payments must furnish a valid taxpayer identification number (either a federal EIN or social security number for sole proprietors) using Form W-9.
Form 1099-MISC is used for reporting the following types of payments:
– Rents,
– Royalties ($10 or more),
– Prizes and awards,
– Medical and health care payments (even if to a corporation),
– Gross payments to an attorney (for services not billed),
– Non-qualified deferred compensation,
– Other income payments and miscellaneous items.
The new Form 1099-NEC is utilized for reporting:
– Payments for services performed by non-employees (including parts and materials),
– Payments to attorneys for services (even if to a corporation),
– Cash payments for fish purchased from fishermen engaged in trade.
Obtaining accurate and complete information from vendors via Form W-9 is critical to ensure timely and error-free filing of Form 1099. If a vendor declines to provide a W-9 or submits incomplete or incorrect information, the payer must make reasonable efforts to obtain accurate details. If payment has already been made, Form 1099-MISC or 1099-NEC must be filed with the available information, even if incomplete. In cases where the vendor refuses to provide necessary information, a backup withholding of 24% on the payment must be withheld and remitted to the IRS. Note that each state also has its specific filing and withholding requirements.
For more specific information, contact a ShindelRock tax professional.