What Is Form 1099-NEC and 1099-Misc?

The penalties for not filing 1099 can add up quickly and vary from 50 to 110 dollars per form depending on how long past the deadline you issue them, in fact, if a business intentionally disregards the requirement to provide a correct pay statement it is subject to a minimum penalty of 550 dollars per statement so knowing when and how to issue forms 1099 is extremely, extremely important

In today's article I'll walk you through when to issue form 1099 NEC and 1099 MISC we'll talk about applicable exceptions and why you should always ask your vendor your contractor to provide a W-9, and I'll also share what you need to know about penalties for not issuing these forms also I want to let you know that there is a new requirement for small businesses if you use third-party payment processors such as Venmo or PayPal they will now be reporting everything that has gone through your account if it is more than $600 or more in total for the year I do have a separate article that walks you through everything you need to know regarding those things as of a 2022-year end I have some tips for you in that article, so please make sure that you are aware of the most recent IRS requirements for third-party payment processors such as Venmo PayPal and similar companies

Form 1099-NEC is issued for each person to whom you paid at least $600 during a year in:

• Rents
• Services (including parts and materials)
• Prizes and awards
• other income payments

The payment would have been for services performed by a person or a company, typically these are your vendors or subcontractors who is not the payer's employee. So you do not issue them to your employees, but you issue a 1099-NEC to your vendor or your subcontractor that includes any Individual, Partnership, LLC Limited partnership, or Estate you don't need to worry about 1099 for payments made for personal purposes only those made in the course of your trade or business. Other payments over 600 dollars that a payer makes in the course of the payer's business for things such as rent, prizes, and awards, or what the IRS refers to as "other income payments" are reported on form 1099-MISC.

EXCEPTIONS (DO NOT ISSUE FORM 1099-NEC FOR:)

1. Vendors operating as S or C-corporations (this is why you need to get a W-9 so that you know what their status is)
2. LLCs or Partnerships (only if they're taxed as an S or C-corporation) again you need to see their W9 to know that
3. Sellers of merchandise, Freight, storage, or similar items

In addition to that don't worry about credit card payments you can exclude from form 1099-NEC any payments that you made by credit card debit card gift card or third-party payment Networks such as PayPal but don't let that fool you these payments are reported Anyway by the card issuers and third-party payment networks on form 1099k

So the address will get the information regardless I know you will find this very, very confusing, and frankly, I think all of us sort of struggle with the Logic behind it, but payments made using Venmo are in their own category if you use Venmo to process payments to your vendors your contractors the IRS wants you to include these payments in your accounting records your books and figure out if you've paid a vendor more than $600 if so you need to issue a 1099-NEC to them as well now the reason for this is Venmo does not take care of 1099 for you, which leaves every business owner responsible to issue the proper 1099.

Next in this article I want to briefly mention w9s you're not going to be able to issue form 1099 if you don't have a W-9 from your vendor or your subcontractor which brings me to a quick tip always request a W-9 from any vendor you expect to pay more than $600 before you pay them, so it should be a standard procedure for you to ask for a W-9 and then issue a payment to them this way you will have everything that you need from them their mailing information their tax ID number you'll know what business structure they have so that you know if they fall under one of those exception rules that we talked about earlier in this article, so the bottom line is getting a W9 from them will help you take that tax write-off

I know many of you may be curious if you can download it 1099 off of the IRS website unfortunately because this form consists of three parts one goes to your vendor the second copy to the IRS and the third remains with you, you cannot simply download it all 1099 come pre-printed by the IRS which means that you actually have to do some planning, and you may want to order the forms from the IRS or some other Outlet like a post office

The IRS loves deadlines so let's talk about that we are required to issue and mail out all Forms 1099-NEC by no later than January 31st also starting in 2022 business owners have to prepare all of their 1099-NEC forms and send accompanying 1096 Forms and mail them to the IRS or you can also file them electronically with the IRS by January 31st as well it's not the end of February which was the old rule it's now the end of January by the way your state may also require that you file a 1099-NEC with them, it depends on your state laws so just make sure that you are familiar with those

Now form 1099 MISC does not have to be sent to the IRS by January 31st you have a little bit more time here Forms 1099-MISC with form 1096 has to be mailed by February 28th if you want to file electronically you can gather all the same documents and file them electronically by March the 31st I know some of you may default to paper forms While others prefer to file them electronically I want you to know that you can File up to 250 Returns on Paper if you have more than 250 forms 1099 to file you must file electronically so that's yet another rule that the IRS has if you don't file these forms, and you don't have an approved waiver you may be subject to a penalty of up to $100 per return for failure to file electronically unless you establish what the IRS refers to as reasonable Clause

The last thing we'll cover in this article are penalties if you happen to miss the deadline penalties can be anywhere from fifty dollars to one hundred and ten dollars per form so Per form depending on how long past the deadline in addition to that if the IRS can prove that you intentionally disregarded that requirement you may be subject to a minimum penalty of 550 dollars per statement that you failed to file and there is actually no maximum, so it can be one million or two million dollars there's no maximum at all the IRS charges interest on penalties too by the way so if you are really Unsure how to handle this process if you're not sure how 1099-NEC works you'll need to find a CPA who can help you out you don't really have a way out

So my advice to you is don't ignore the 1099 or the process plan for it in advance, and now is a good time to start learning about it and possibly start looking for a professional who can help you out