When Do I need to Send a Form 1099?

As the end of the tax year approaches one of the questions I will regularly receive from small business clients is “to whom do I have to send Form 1099’s?”  This is certainly an important question because if not sent properly, a small business may not be able to deduct the payments.

Note that the requirement to send a Form 1099 applies only to a trade or business you operate for a gain or profit and does not apply to individuals.  So if you hire a painter to paint your house for $3000 you do not need to send this form to him.

However, if your business paid rent for office space exceeding $600 in the tax year you would have to send them a Form 1099. However there are important exceptions to this that I’ll discuss below.  If your business hired an independent contractor to perform services for the benefit of the business – once again with the $600 limitation – you would need to send a 1099, subject to the same exceptions below.

What if you gave an employee a round trip ticket to Tokyo worth $1000 as a bonus for great performance?  This would not necessitate a Form 1099 – report this on her W-2 instead.  However if you gave that same ticket to a non-employee you would have to send a Form 1099.

While the general dollar limitation for the Form 1099 is $600, this does not apply to royalties.  If you pay someone royalties in of $10 or more – fill out the form and send it.

Personal injury attorneys have their own rules when it comes to reporting client awards (whether at trial or at settlement).  If the award is related to physical injury or physical sickness or if the amount received does not exceed the amount paid for medical care for emotional distress, there is no reporting requirement. Damages related to emotional distress, and associated physical symptoms are generally not considered received as a result of physical injury and therefore must be reported.  However, if the emotional distress is the result of physical injuries or physical sickness, there is no reporting requirement.

Payments to attorneys – If during the course of your business operations you hired an attorney to handle business related matters costing at least $600, you have to send a Form 1099.  While the general rule is that payments to corporations are exempt from Form 1099 reporting, this does not apply to payments to attorneys or law firms. These payments must be reported on the Form 1099.

Deadlines – when do form 1099’s have to be filed?  If you are using the form to report non-employee compensation, (payments to independent contractors) in box 7, the due date is January 31, 2020.  This means that if you are filing paper forms they need to be postmarked by midnight, January 31^st.  I strongly recommend that you send these forms via certified mail or commercial delivery service.  This way you will have a receipt that you can use to prove that you mailed it.  For all other payment reporting the deadline is February 28, 2020 if you file paper returns or March 31, 2020 if you file electronically.

Exceptions to the filing requirements.  The following exceptions apply:

1. In general, payments to corporations need not be reported. If a limited liability company made an election to be taxed as a C or S corporation then those payments do not have to be reported on the form 1099.  If your payments were to a limited liability company you will need to ask whether they are taxed as a corporation (C or S – either one works).
2. If your business pays rent to a real estate professional or property manager there is no reporting requirement.
3. Payments for goods, utilities, telephone, freight and postage do not require reporting.
4. Wages paid to employees of your business should be reported on the W-2 not the Form 1099.
5. Business travel allowances should likewise be reported on the W-2 not the Form 1099.