1099 Filing Season is Here

Another year has ended which means we are entering into another compliance filing season with the IRS: 1099 Filing Season. January can be a busy month for businesses that have Form 1099 filing requirements. The Form 1099-MISC and the Form 1099-NEC are the two most common types of Form 1099’s that business will need to issue to both the recipient and the IRS. 

Form 1099-MISC:

What is it? The Form 1099-MISC is an information return that businesses use to report payments other than non-employee compensation to others.

What payments are included: Payments for rent (box 1), royalties (box 2), other income including prizes and awards (box 3), fishing boat proceeds (box 5), medical and health care services (box 6), substitute payments in lieu of dividends and interest (box 8), crop insurance proceeds (box 9), gross proceeds paid to an attorney (box 10), fish purchased for resale (box 11), Section 409A deferrals (box 12), excess golden parachute payments (box 13), and nonqualified deferred compensation (box 14) are payments that are reported. Most of these are very uncommon payments. The most common reasons for a Form 1099-MISC would be to report rent and other income.

What is the reporting threshold? There are a few different thresholds for Form 1099-MISC depending on the type of payment. Form 1099-MISC is required if there was at least $10 in royalties (box 2) or broker payments in lieu of dividends or interest (box 8); at least $600 in rents (box 1), prizes and awards (box 3), other income payments (box 3), medical and health care payments (box 6), crop insurance proceeds (box 9), cash payments for fish (box 11), and payments to an attorney not related to legal services (box 10); and any amount for payments for fishing boat proceeds (box 5), excess golden parachute payments (box 13), and nonqualified deferred compensation (box 14).

Are there exceptions? There are a few exceptions but the most noteworthy is payments to a corporation which includes but is not limited to LLCs that are treated as an S corporation for tax.

When is it due? The Form 1099-MISC is due to the recipients January 31, 2025 with an exception for the payments for substitute payments in lieu of dividends or interest (box 8) and gross proceeds paid to an attorney (box 10). Those payments are not due to the recipients until February 17, 2025. The Form 1099-MISC is due to the IRS February 28, 2025.

Form 1099-NEC: 

What is it?  The Form 1099-NEC is an information return that requires businesses to report payments to non-employees. 

What payments are included? Reports payments to someone who performed services in the course of your trade or business and they are not your employee such as fees, commissions, and other forms of compensation. It would also include cash payments for fish (or other aquatic life) you purchase from anyone engaged in the business of catching fish and payments to an attorney for legal services.

What is the reporting threshold?  Businesses are required to issue a Form 1099-NEC if the payment was $600 or more. 

Are there exceptions?  Form 1099-NEC is not required to be issued to corporations (also includes LLC’s that are treated as an S corporation for tax) unless the payment was to an attorney for legal services. 

When is it due? The Form 1099-NEC is due to the recipients and to the IRS by January 31, 2025. This is different from the Form 1099-MISC.  

Summary Form 1096:

When a business is required to file either Form 1099-MISC or Form 1099-NEC, they are also required to submit a Form 1096 that is an annual summary of the information returns submitted. 

Electronic Filing Requirements

If you have 10 or more information returns, you must file them electronically. You will need a Transmitter Control Code (TCC) in order to e-file which can take up to 45 days for processing. E-filing can be done through the Information Returns Intake System (IRIS) and information can be found on the IRS website.

Penalties: 

The penalties for either late filing or for an intentional disregard for not filing can add up quickly. For the Form 1099-MISC and Form 1099-NECs due in 2025, the late filing penalty is charged for each information return failed to be filed on time and each recipient statement failed to be provided on time. The penalties are listed below:

Interest will also be charged on the penalty amount owed. 

Tips for 2025

If you find that your 2024 Form 1099s are not going smoothly, here are some tips to make sure that next year is better:

Collect Form W-9s Promptly: When engaging in business with new vendors, it is best practice to collect their Form W-9 at the time of payment. This will allow you to already have record of their name, address, taxpayer identification number and their entity type and you can avoid any last minute scramble trying to get information. 

Organize and Automate: Stay organized with the information and maintain a central filing system for all Form W-9s, invoices, receipts, and contracts. Most accounting software offers support with this organization and can even help automate the process. Make sure you are checking in with your software provider to see how they can help. 

Gain an Understanding: Have an understanding on what payments you are required to issue 1099s for and when. If you are unsure, make sure you ask your tax advisor for assistance. It can be a costly mistake in time and money when you are not compliant.