One of the most extensive year-end business owners' tasks is filing and sending 1099 forms by the January 31 deadline. Depending on how many contractors your company used in the previous year, 1099s can become a time-consuming project that many business owners leave for the last minute.
For Basis 365 customers, we have you covered, as we are currently working on 1099s. However, if you send out your company's 1099s, you'll want to be aware of the 1099 form changes the IRS has made . Here's a quick rundown of everything you need to know about 1099 requirements for 2020.
Who do I send 1099s to?
You are required to send 1099s to all contractors and vendors classified as a Sole Proprietor, LLC, LLP, or PC whom you've paid over $600 in the past year. Any attorney whom you paid over $600 in the past year, regardless of their business entity, will need to receive 1099 as well.
Now take a look at how you paid your vendors. If you used a check or ACH, you'd need to issue a 1099. If you used a payment service like PayPal or Venmo, that service would issue the appropriate form.
What information will I need for the 1099 form?
You will need the individual's name or the business's legal name, the employer identification number (EIN) or social security number (SSN), and mailing address. You should have this information on file if you collected W-9 forms from vendors previously. You will also need to calculate the exact amount paid to the contractor during the said calendar year.
We recommend collecting W-9s from your vendors before you pay them for the first time. Be sure the forms are legible and signed so you can update the contractor's information in your accounting portal. Taking the time to do so will save you lots of time in January.
What changes have been made this year?
To stay compliant with the new 1099 requirements for 2020 here’s are the differences you need to know:
The IRS has added a new form, called 1099-NEC . Employers should use form 1099-NEC to report non-employee compensation, no longer recorded on the 1099-MISC form.
1099-NEC forms must be filed and sent to recipients (postmarked) by January 31, 2021.
If you rent a machine, you need to split the amount between the machine contract and the amounts paid for operator services.
Machine rental is reported on form 1099-MISC. The fees paid for the operator’s service are reported on form 1099-NEC.
What’s the 2021 deadline for sending and filing 1099s?
As referenced above, all 1099 forms must be filed with the IRS and postmarked to recipients by January 31, 2021.
What happens if I miss the 1099 deadline?
Be aware the IRS places penalties on late 1099s, and that penalty increases based on how far past the due date you file.
If you correctly file within 30 days of the original due date the penalty is $50 per information return; the maximum penalty is $536,000 per year ($187,500 for small businesses).
If you correctly file more than 30 days after the original due date the penalty is $100 per information return; the maximum penalty is $1,609,000 per year ($187,500 for small businesses).
If you file after August 1 or do not file required information returns the penalty is $260 per information return; the maximum penalty is $3,218,500 per year ($1,072,500 for small businesses).
If you have any questions about the new Form 1099-NEC, current customer please contact your controller. If you’d like Basis 365 to handle your 1099 process, contact one of our expert advisors to get set up.