Filing 1099 information returns is a burdensome requirement for payers (businesses and individuals who make payments and handle associated tax requirements). There’s a lot of work involved; collecting the appropriate payee information, tracking payments and thresholds, and submitting tax forms to appropriate parties, and more. In this quick guide we’ll familiarize you with the core elements of 1099 filing, while emphasizing the responsibilities you must consider when beginning your 1099 tax compliance journey.
The first step in 1099 fluency is to understand the most common 1099 forms, while this list is not exhaustive, it will provide you a base understanding of the most common categories of reported income and, likely, which forms may be more relevant to you.
1099-MISC (Miscellaneous Income): This form reports various types of miscellaneous income paid to individuals or non-corporate entities. This can include payments for services performed by non-employees (such as freelancers or independent contractors), rents, royalties, and other types of income, who receive $600 or more per year.
1099-K (Payment Card and Third-Party Network Transactions): This form reports payments processed by payment settlement entities. It applies to businesses that accept card payments or third-party network transactions exceeding certain thresholds ($600 as of Aug 2023).
1099-NEC (Nonemployee Compensation): Used to report payments made to independent contractors or non-employees, such as freelancers, who receive $600 or more during the year.
1099-INT (Interest Income): This form is used by banks and financial institutions to report interest income exceeding $10 paid to individuals during the tax year.
Less common forms for you to be aware of include:
Form 1099-DIV (Dividends & Distributions): This form is used to report dividends and distributions on annual investment income of $10 or more.
Form 1099-R (Retirement Account Distributions): This form is used to report annual distributions from pensions, annuities, retirement plans, and insurance contracts of $10 or more.
Form 1099-B (Proceeds from Broker and Barter Exchange Transactions): This form is used to report sales of securities or other financial instruments and issued for each individual who had a qualifying event in the previous year.
Form 1099-S (Proceeds from Real-Estate Transactions): This form is used to report annual proceeds from real estate transactions of $600 or more.
Form 1099-C (Cancellation of Debt): Form used to report canceled debts or forgiven amounts that exceed $600.
Once you understand the types of 1099s and which apply to your business, the next step is to determine what your obligations are, and to whom. If you are filing a form that is not addressed here, keep in mind that the requirements for who and what will likely be the same, it will be the dates that need to be verified on an IRS website.
Filing Forms 1099-MISC, 1099-K, 1099-NEC, 1099-INT: These forms typically must be sent to the recipient by January 31st of the year following the tax year. You can mail a physical copy or, with recipient consent, send it electronically.
Recipient Copy: Individuals or entities receiving payments that are reportable on a 1099 form must receive a copy of the relevant 1099 form. This can be delivered via physical mail, or digitally (instructions for electronic consent can be found here)
IRS Copy: You must send a copy to the IRS, adhering to the deadlines mentioned earlier (e.g., January 31st for 1099-NEC). Delivering a copy to the IRS is considered a filing. The deadline for delivering 1099-K is February 28th
State Copy (if required): Depending on your state's regulations, you may also need to send a copy to your state's taxing authority by the state's specified deadline. Similarly to the IRS copy, delivering a copy to the state is considered a filing.
Recordkeeping: Keep a copy of every 1099 form filed for your records. The IRS recommends retaining these records for at least three years.
Now that you understand the general 1099 landscape and how it applies to you, it’s time to file with the IRS. You have options available when filing, but those options may be limited based on the size and/or needs of your business. Review below options to understand what method best applies to your unique set of business criteria:
Electronic Filing: You can file these forms electronically through either the IRS's FIRE System (Filing Information Returns Electronically) or the IRIS (Information Return Intake System). It's mandatory to e-file if you have 10 or more returns.
Assisted Electronic Filing: you can partner with an API to submit electronically on your behalf. The benefits include increased efficiency in queueing and batch processing and lower internal overhead vs direct filing with FIRE or IRIS.
Paper Filing: If you have fewer than 10 returns, you can choose to file on paper using the official IRS forms. Paper filings must include Form 1096 as a cover sheet. To file, simply print out your 1099 forms and mail to the designated IRS address. Similarly, you can opt to outsource the issuance of paper filings to a tax professional.
You’ve filed with the IRS, but you aren’t quite done, yet. State-level filing requirements vary dramatically, so it's crucial to consult a tax professional or the tax authority of every state in which your payees reside to determine if another filing is required. Some states participate in the Combined Federal/State Filing Program, allowing you to file both federal and state returns at once through the FIRE system, others may require separate filings through the state's tax agency website or by mail.
The deadlines vary by form types. As of the last update, the common due dates are:
1099- MISC & 1099-NEC: Due to the IRS by January 31st of the year following the tax year. Many states also require these forms to be filed by January 31st.
1099-INT & 1099-K: Typically due to the IRS by February 28th (if filing by paper) or March 31st (if filing electronically) of the year following the tax year. State deadlines may vary.
Accuracy: Ensure that all information on the forms is correct. Mistakes can lead to penalties.
Consent for Electronic Delivery: If you wish to send the 1099s electronically to recipients, you must obtain their prior consent and follow specific guidelines laid out by the IRS.
Address Verification: Verify the recipient's address before mailing to avoid delays or misdelivery.
Privacy: Take precautions to protect the sensitive information contained in these forms, whether transmitting electronically or through physical mail. Criminal and civil penalties may result from mishandling your payees personal information.
We know that 1099 reporting and filing can be a burdensome process. Hopefully this document has helped clarify and guide you in your responsibility for timely delivery of appropriate forms to recipients, the IRS, and possibly state taxing agencies. In remaining vigilant to changing tax regulation and duties, you can ensure compliance and avoid penalties.
If you’d like assistance in managing your 1099 filing responsibilities with the peace of mind of a partner staying on top of compliance for you, reach out to Abound at email@example.com; we bring simplicity to a world of chaos.