1099/1096 Reporting Requirements

Expand / Collapse
 
     

1099/1096 Reporting Requirements


The IRS requires that businesses (including churches and non-profit organizations) issue a Form 1099 to any individual or unincorporated business paid over $600 in the calendar year for services (including parts and materials), rents, prizes and awards, other income payments, medical and health care payments, and gross proceeds paid to an attorney (even if the attorney is incorporated).  1099/1096 forms must be filed January 31st or before.

If you did not pay the vendor over $600, you do not have to file the 1099 form.

Why file?  

Generally, the 1099 is provided show payment to someone who is not an employee of the business for services rendered, prizes awarded, rent paid, etc.  If you are going to claim the payment as a tax-deductible business expense, the IRS wants to know who should be claiming it as income.

How to prepare?

When you are contracting out with a vendor for services rendered, have the vendor fill out a W-9 form before starting their work, even if you are unsure if you will pay the vendor more than $600 per calendar year.  This will provide you with the Vendor/Business Name, mailing address and Tax Identification Number (TIN) that you will need to file a correct 1099.  You can obtain and print W-9 forms at www.irs.gov.

Go to your Ledger & Payables > Vendors > add or select the Vendor and verify the name/address information follows the W-9 provided by the Vendor > go to the Vendor's 1099/Checks tab and click the check box at "Print a 1099 for this Vendor?" and enter the Vendor's TIN number.  Choose the appropriate option in "Print In 1099 Box", Box 7 Non Emp Comp will be the most common.

Then simply enter your transactions as normal.  The system will automatically keep track of the payments made to the Vendor and if it exceeds the $600 limit, a 1099 can be printed for the Vendor.

Employee vs. 1099 Contractor

While issuing a 1099 to an independent plumber or electrician is obvious, you should know the rules for issuing a 1099 or W-2 to your church custodian, cleaning lady, or nurse.

Here are seven things every business owner should know about hiring people as independent contractors versus hiring them as employees.
  1. The IRS uses three characteristics to determine the relationship between businesses and workers:

    • Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.

    • Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job.

    • Type of Relationship factor relates to how the workers and the business owner perceive their relationship.

  2. If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
     
  3. If you can direct or control only the result of the work done -- and not the means and methods of accomplishing the result -- then your workers are probably independent contractors.
      
  4. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms. 

  5. Workers can avoid higher tax bills and lost benefits if they know their proper status.
     
  6. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.

  7. You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link.  Additional resources include IRS Publication 15-A, Employer's Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS website or by calling the IRS at 800-829-3676 (800-TAX-FORM).

1099/1096 Form Requirements
  • 1099-MISC form issued to the vendor may be printed on pre-perforated paper in black ink. 
  • 1099 Copy A form must be printed on a red pre-printed form and must not be separated.  Two 1099's will print on a single sheet.
  • 1096 Summary form must be printed on a red pre-printed form.
  • Forms can be obtained from www.irs.gov or www.parishsoftforms.com.
  • If you have more than 250 Vendors, you must file your 1099/1096 electronically.

What if you don't file?

If you fail to file a correct information return by the due date and you cannot show reasonable cause, you may be subject to a penalty. The penalty applies if you fail to file timely, you fail to include all information required to be shown on a return, or you include incorrect information on a return. The penalty also applies if you file on paper when you were required to file electronically, you report an incorrect TIN (Tax Identification Number) or fail to report a TIN, or you fail to file paper forms that are machine readable.

The amount of the penalty is based on when you file the correct information return. The penalty is:

  • $30 per information return if you correctly file within 30 days (by March 30 if the due date is February 28); maximum penalty $250,000 per year ($75,000 for small businesses, defined below).

  • $60 per information return if you correctly file more than 30 days after the due date but by August 1; maximum penalty $500,000 per year ($200,000 for small businesses).

  • $100 per information return if you file after August 1 or you do not file required information returns; maximum penalty $1,500,000 per year ($500,000 for small businesses).

 


Add Your Comments


Comment require login or registration.

Details
Last Modified:Wednesday, January 04, 2012
Last Modified By: Mary Breault
Type: Information Article
Level: Intermediate
Rated 5 stars based on 1 vote.
Article has been viewed 2,315 times.
Options