Every business owner’s favorite: the 1099 filing requirements. Business owners must understand there is a new form when preparing 1099 forms this year.
Every year business owners must file a 1099 form reporting nonemployee compensation paid to subcontractors, etc for all types of services. Here are four things you should be aware of as a business owner:
- Many businesses chose to ignore this filing requirement and just not file 1099s. Just be aware the maximum penalty for not filing 1099s is a per form penalty up to a maximum of $556,600 in total per year. No one wants to pay a penalty like that!
- You must get a W-9 form from every subcontractor for your files. When the subcontractor signs the W-9 form, they sign stating they are not subject to backup withholding. This is your proof you are allowed to pay the business owner rather than the IRS. If a subcontractor won’t give you a W-9 form, then as the business owner you must withhold 20% of their payment and send it to the IRS. For this reason, you should get the W-9 before paying for services. Once you have the W-9 form on file you don’t need to get a new form in the future.
- Watch for incorrect W-9 forms to protect from getting letters from IRS when you file 1099s. A common mistake is that an individual will put his or her business name on the W-9 form but give you their social security number. If their business has a name and federal ID number, then they should fill out the form with the business name and federal ID number of the business. If they use their personal name on the W-9, they should give you their SS#. The IRS matches the 1099s you file against the social security number and federal ID number database. If the name and number do not match, you will receive a friendly letter from the IRS encouraging you to have the correct information in the future or withhold from the taxpayer when you pay them.
- The newest change is the form itself. Subcontract labor and services were reported on the 1099 MISC form in the past. The IRS has now decided that this reporting needs a form of its own, so this year you will use a 1099 NEC form to report nonemployee compensation previously reported on the 1099 MISC. Be aware when you order forms so that you don’t come down to the deadline and realize that you can’t file your 1099s on time because you have the wrong forms.
If you need further assistance with your 1099s or any other business accounting, please give Doerhoff & Associates a call. We’re happy to help.
Bert Doerhoff CPA
