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1099 Compliance


Organizations that make payments to independent contractors and other non-employees are at the time of the year when they must prepare and file their 1099 Forms. A 1099 Form must be submitted to the IRS when an organization pays a non-employee $600 or more during a year. The process for filing 1099s can be daunting if this is your first-time filing, or if you have several payees (which includes vendors, contractors, and non-employees). The process can be more complicated if you have not obtained W9s from independent contractors and non-employees. The primary purpose of the 1099 form is to notify the IRS of income earned and therefore taxable.

A sound organization policy is having all payees complete a W9 form, which is the Request for Taxpayer Identification Number and Certification before you hire them. According to the IRS, a W-9 form can be used to show the vendor exists and the vendor has provided the correct name and Taxpayer Identification Number (TIN). The W-9 form should be kept in your files for four years for future reference in case of any questions from the vendor or the IRS. You must file 1099, even if you are unable to collect a payee tax ID. Below are the main boxes that organizations typically fill out:

  • Box 1- Rents: report rents of $600 and more

  • Box 2- Royalties - report gross royalty payments of $10 or more paid to non-corporate recipients for patents, copyrights, trade names and trademarks

  • Box 3 - Other Income - report other income, such as prizes, awards, attendance fees, and other passive types of income

  • Box 6 - medical/health and legal payments made to all business entities

  • Box 7 - Report non-employee compensation for services of $600 or more made during the calendar year to all non-corporate income recipients. Box 7 information is due to the recipients and the IRS by Jan. 31.

For those of you who use Xero as your accounting application, you also can use it to assist in your 1099 filing. When using Xero, you set up report rules for your contractor expenses so they automatically record to a 1099 form. However, please be aware that the rules filter out payments made by credit card or third-party services, such as PayPal and Upwork Global, Inc. The rules also exclude expense claims. Therefore, you must be aware that you may need to file a 1099 report manually if payments were made to contractors via PayPal because PayPal reports payments to the IRS via a 1099-K form if a vendor meets the following limits in a calendar year:

  • $20,000 in gross payment volume from sales of goods or services in a single year

  • 200 payments for goods or services in the same year

The threshold for PayPal is much higher than the $600 threshold applicable to other organizations.

If you use QuickBooks Online, you first must ensure the vendors requiring 1099s are correctly marked to “Track Payments for 1099” in the vendor profile. The vendor profile must be populated with the complete Tax ID number and a complete mailing address. Similar to Xero, QuickBooks Online has a 1099 Wizard that allows you to select the account (general ledger account, aka chart of accounts) you want to be reported on the 1099s. The 1099 Wizard is found in the Vendor menu.

Once 1099 reports are complete, and all vendor information is validated, you can e-file the 1099 using Tax1099.com, which integrates with Xero, QuickBooks Online, and QuickBooks Desktop.

Using Tax1099.com makes the filing process much more efficient. You can choose Tax1099.com not only to e-file the 1099 forms, but also to send the recipient their copy of the form via email or mail. I appreciate the services provided by Tax1099.com because I also am able to verify the vendor Tax ID numbers via their TIN Match service. I also use Tax1099.com to request the completion of vendor W9 forms.

If you have questions regarding filing 1099s, please schedule a call with me at GritForce Bookkeeping at https://gritforcebookkeeping.agilecrm.com/calendar/ana_chairez.

References:

Costa Levi P, C. (2017). 1099 Compliance: What every Accounts Payable professional must know about it. New York: Barnegat Lighthouse Business Publications.

W-9 Request For Taxpayer Identification Number And ... (n.d.). Retrieved from http://ffs.dhs.ga.gov/ffs/manuals/financial/W9-1099Information.pdf

Why Did I Receive A 1099-k Form From PayPal? – Bookkeeping ... (n.d.). Retrieved from https://help.bookkeeping.godaddy.com/hc/en-us/articles/223827427-Why-did-I-recei