All About 1099 Forms & Filings

What are These Forms?

IRS Forms 1099-NEC and 1099-MISC are information returns filed with the IRS that reports taxable payments made during the year to the person/entity named in the form.

1099-NEC is a new form for 2020 that is specifically used for reporting non-employee compensation. It is now the main weapon used by the IRS to detect under reporting by self-employed individuals.

The IRS may impose penalties if a business fails to file a Form 1099 when required.

When Must Form 1099 be filed?

You are required to file a 1099-NEC whenever you pay $600 or more during a year to an unincorporated independent contractor (a sole proprietor, single-member LLC or member of a partnership) for work done in the course of your trade or business. A 1099-MISC must be filed to report rent paid on business property if the landlord is not organized as a corporation. An added wrinkle here is that a 1099-MISC also needs to be filed be filed for payments made to attorneys, even if they are organized as a corporation.

Also, when you prepare your Schedule C, you are required to answer questions as to whether you needed to file any 1099 forms and, if so, did you or will you file them. Remember that answering questions on your tax forms is providing information to IRS under penalties of perjury. As always, substantial penalties may be imposed for incorrect answers.

What Steps Should You Take to Prepare for 1099 Forms?

You should request that your vendors, contractors and other payment recipients submit to you a Form W-9. The W-9 will provide you with the legal name, address and taxpayer identification number for the vendor, which is the information you will need when preparing any 1099s.

CLICK TO OPEN A FILLABLE W-9 FORM

You need to keep track of your payments in your bookkeeping system, to know if your payments to a particular recipient reach the $600 threshold for reporting.

What are the Penalties for Late Filings of 1099 Forms?

The following penalties will be in effect for each calendar year 2020 returns:

  • $50 penalty for filing a 1099 not more than 30 days late;
  • $110 penalty for filing a 1099 more than 30 days late and before August 1;
  • $270 penalty for filing a 1099 on or after August 1, or not filing at all;
  • $550 penalty for intentional disregard of the filing requirements.

Deadlines for 1099 Forms

You are required to provide each recipient with his or her copy of the Form 1099-MISC or 1099-NEC and file the form with IRS by January 31 to report income for the previous calendar year.

Special Filing Requirements for Oregon

Oregon is one of several states that does not “piggyback” on 1099 filings made with IRS. Hence, transmissions made to IRS (through Track1099.com or any other filing method) never have that information forwarded to the state.

Oregon requires that this information be reported directly to them. It must be uploaded to the Department of Revenue (ODR) online (no paper filings accepted), and this must be done no later than January 31st for the prior year’s 1099 forms.

ODR has created a portal at their website called “Revenue Online” which allows registered taxpayers to view and work with most aspects of their personal and business tax accounts. If you haven’t already set up access here, it is worth taking the time to do so here:

https://revenueonline.dor.oregon.gov/tap/_/

However, a Revenue Online account is not required for filing 1099’s. To initiate the filing process without first registering, please first go to:

https://www.oregon.gov/dor/programs/businesses/pages/iwire.aspx

and then click the “Take Me To iWire” box to begin

On the next screen, assuming that you’re only filing a few forms at most, select “Manual Entry” & “Next”, and you’ll be taken to screens on which you can enter the same information as you would for an IRS 1099 filing.

The whole process is pretty easy to complete. However, the penalties for not filing the information can be really nasty. ODR says they will assess a $50 for “unknowingly” failing to file each required form, and $250 for “knowingly” failing to file. Also, if a required filing not timely made is discovered upon state examination or audit, ODR may deny the expense of any such 1099 payments made on the Oregon tax return.

For example – You paid a contractor $3,000 in 2020, filed a 1099 with IRS but did not make a similar filing with Oregon. Or, you dragged your feet and didn’t make the Oregon filing until February 1, 2021. Oregon later pulls your 2020 tax return for review and ultimately discovers that a timely filing wasn’t made. ODR can then assess one of the penalties ($50 or $250) and can also deny $3,000 of expense deduction on your state return.

What if a Contractor refuses to provide a W-9 form?

You are still responsible for reporting the amount of money paid to the IRS. When a W-9 form is withheld, the IRS advises businesses to immediately start backup withholding from the earnings of the contractor or vendor.

Backup Withholding:

When a contractor refuses to provide complete information on a W-9 form, you must begin withholding 28% from your payments to them. These funds are later sent to the IRS after the close of the year along with Form 945 Annual Return of Withheld Federal Income Tax. You should continue the backup withholding until the contractor completes a W-9 form.

Filing Information With the IRS:

When reporting a payee’s earnings on a 1099, you can include the payee’s known information, such as name and mailing address, and omit the unknown Social Security or other Tax ID number. You may still be subject to a penalty for reporting incomplete information. After reviewing the filing, IRS will send you a Notice to be given to the vendor within 15 days of receipt. The Notice will contain backup withholding information and a W-9 form that the vendor should complete and return to you.

What Can You Do to Simplify the Process?

Fortunately, there are several online vendors you can use prepare the forms, mail them to your contractors and electronically file them with the IRS, all for very reasonable rates (less than $6.00 per form). I have had excellent experience with Track1099 and can recommend them with great confidence. I also can prepare and file these forms for you as well.