What Every Business Owner Should Know About Filing Form 1099-MISC
Businesses have the obligation to report to the individual taxpayers and the IRS by filing Forms 1099-MISC and 1096 for transactions totaling over $600 made during the calendar year as part of routine business operations.
Report all payments made to unincorporated independent contractors who are sole proprietors or member of a partnership or LLC paid by direct deposit or cash. Report amounts in Box 7 as Non-employee compensation.
If you pay independent contractors by credit card, debit card or by using a third-party settlement organization such as PayPal or Square, you are not required to file Form 1099-MISC even if you pay more than $600 during the year. This is reported by settlement entity via Form 1099-K.
Some business-related payment exceptions:
- Must provide Form 1099-MISC to incorporated lawyers and payments to doctors for professional services rendered to a business
- Do not issue Form 1099-MISC for merchandise, inventory, telephone, freight, storage, and similar items
- Do not issue Form 1099-MISC for payments of rent to real estate agents or property managers. (However, Real Estate agent must file Form 1099-MISC to report rent paid to owner)
Form 1099-MISC is a multi-part form that can be purchased at any office store, Intuit if filing electronically via QuickBooks or forms may be requested from the IRS. Photocopies are not accepted.
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Reporting Informational Return to the IRS:
If filing electronically, Form 1096 (Annual Summary & Transmittal of U.S. Information Returns) is not needed, the electronic system automatically creates a summary report. You must electronically file if you are required to file more than 250 of any type of 1099 Form.
If you choose to paper file with the IRS, you must use transmittal Form 1096. Photocopies are not accepted; non-scannable forms are subject to a $50 fine. This reporting form has 3 different filing dates, depending on which boxes are completed. Filing dates have changed as of 2016.
Paper Filing instructions:
Check which address to use for the Department of Treasury (IRS) to mail information returns, depends on the location of the principal business. Make copies of completed Form 1096 for your records, keep along with copy C of Form 1099-MISC. Make sure to include copies A of Form 1099-MISC along with Form 1096.
The amount of penalty is based on when you file the correct information return or furnish the correct payee statement. The penalty for not filing a correct information return is separate from the penalty for not providing the correct payee statement. The IRS Copy A and the Recipient Copy B each count as a separate return, you could be facing two penalties – one for each copy.
The penalty rates and maximums for not filing correct information returns and/or not furnishing correct payee statements.