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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 expe