After decades of using 1099-MISC forms, the IRS recently recognized the need to separate amounts reported on the form that have different filing dates. The IRS now requires that non-employee compensation be reported on form 1099-NEC, putting additional compliance responsibility on businesses that use independent contractors.
Form 1099-MISC (miscellaneous) will still be appropriate in some circumstances, therefore additional steps are needed to ensure that you produce and file the correct forms by their corresponding due dates. The following steps will help you clarify 1099-NEC versus 1099-MISC forms, meet filing deadlines, address inefficiencies and improve your tax season preparation.
Know the filing requirements: 1099-NEC vs. 1099-MISC
When should you use the 1099-NEC versus 1099-MISC form? The IRS mandates that you use form 1099-NEC to report total payments of $600 or more made to non-employees who are not incorporated. Attorney fees are an exception that must be reported on 1099-NEC for any amount paid, whether they are incorporated or not. You must also use 1099-NEC for all dollar amounts that are withheld in taxes from the recipient.
Despite the new 1099-NEC form, the 1099-MISC form is still appropriate in specific cases. The form is used to report items, such as the following:
- Prize winnings
- Gross proceeds paid to attorneys
- Medical or health care payments
- Other income payments
Review vendor records
If you completed an internal I-9 audit before the year’s end, your accounts payable (AP) records will be in good shape. Doing a final pass is the only necessary step, unless you have not completed a recent, thorough review of accounts payable vendor files.
During your review, confirm that your software or physical records have all fields completed for each independent contractor you hired. If volume is an issue, focus on those whose payments you classified as attorney fees, as well as all others to whom you paid $600 or more in total over the past year.
Follow up on W-9 forms
If a W-9 form wasn’t previously collected or can’t be located, now is the time to reach out and secure one from each independent contractor with an incomplete record.
W-9 form collection is critical for two reasons. Firstly, it is the individual’s certification that they provided the information to you. Secondly, but most importantly, it is your defense if you are fined for submitting information to the IRS that does not match with what they have on file for the individual.
W-9 forms provide you with essential contractor information:
- The legal name of the business
- The business’s address
- Taxpayer identification number (TIN)—either a social security number or employer identification number (EIN)
- The type of business entity they utilize for tax purposes
File 1099 returns by the deadlines
The IRS requires 1099 forms to be issued to payees and submitted by the following dates:
- January 31, 2024: 1099-NEC forms must be issued and submitted. 1099-MISC forms without amounts reported in Box 8 or 10 must be issued to recipients.
- February 28, 2024: Submit your 1099-MISC file to the IRS when filing on paper.
- March 31, 2023: Submit your 1099-MISC file to the IRS when filing electronically.
The dates are adjusted annually when they fall on weekends. You can subscribe to or import IRS filing dates into your own calendar or view it online. Due dates sometimes change, so be alert to any adjustments that may be made.
If you want to file 1099 returns on paper, you will need to submit them with Form 1096, which is a transmission cover page. While a sample of the form is available online, it must be ordered from the IRS and mailed to you. Allow adequate time in your schedule to make sure you have it when it’s needed. Filers with over 250 returns are required to submit electronically. To streamline your distribution and submission process, consider using accounting software or an online service.
Perform a post mortem
As with any accounting task, it is always helpful to explore new ways to improve your process. Whether one individual handles the 1099 process for your company, or a team handles different aspects, it’s important to take notes during the process and schedule a short 30-minute review to discuss any stumbling blocks encountered during the process.
When documenting and updating your 1099 process, include a requirement that all vendors provide a W-9 form prior to receiving any payments. Additionally, you should simultaneously capture email addresses if you expect to both pay independent contractors and send 1099 forms electronically. Implementing practices like these will help avoid future issues and ease your tax-filing burden.
If your hands are tied with other high-priority projects, let Paro simplify your taxes and take the burden of 1099s off your plate. Whether you have questions about 1099-NEC versus 1099-MISC forms or you need help meeting upcoming tax deadlines, our fractional experts can give you the bandwidth to put your efforts into what matters most for your business.