Who Needs a 1099: Everything You Need to Know
who needs a 1099 is fairly basic — and yet complex at the same time. Anyone who is under federal law is required to use 1099 instead of a W-2 when filing taxes.3 min read
Who Needs a 1099
Anyone who is a self-employed worker or independent contractor under federal law is required to use a 1099 instead of a W-2 when filing taxes.
What Is a 1099-MISC Form?
Form 1099-MISC is the form used by independent contractors, service providers, or the self-employed to report earnings for purposes of paying taxes. This form helps the IRS to understand how much tax they should expect from the earnings of people who are not regular employees.
Who Files a 1099-MISC Form?
Any companies or business owners who make payments to contractors for services rendered, but do not withhold normal payroll taxes, must file a 1099-MISC form with the IRS, as well as providing a copy to the contractor.
Who Receives Form 1099-MISC?
Any business owner, company, or employer who secures outside services from a vendor, contractor, or subcontractor is required to file a 1099-MISC form with the IRS. They must then also send copies of this form to their contractors, subcontractors, vendors, and service suppliers. Potential recipients of this form include LLCs, Limited Partnerships, Estates, individuals, partnerships, or other providers who paid at least $600 in a given tax year.
Any payments of at least $600 or more are subject to a Form 1099-MISC for any services performed by workers who are not your standard employee. This includes services such as rental agreements, medical payments, healthcare, awards and prizes not given to employees, cash payments for goods or services, proceeds from crop insurance, fishing and boating proceeds, and more.
How to Determine Who Receives a 1099
The first step in determining this is to establish the relationship between the service provider and the company. If the provider is not a standard employee, and they earned at least $600 in services during the year, a 1099 form is required. Other factors that go into this determination include what kind of corporation (if any) a third party is and whether payments are made to attorneys. All payments for legal services must be documented with a 1099-MISC form.
In the end, if you are not certain whether to file a 1099, you should file one. There will be no harm in doing so if one isn't needed, but failure to file one that is required could result in heavy fines and penalties.
Exceptions to the 1099-MISC Requirement
Corporations and LLCs that operate as S-corporations or C-corporations are exempt from filing 1099 forms, except when it comes to paying for legal services. Likewise, payment to those who are selling merchandise, storage, freight, telephones, telegrams, or the like do not require 1099 forms.
In general, when you pay rent under a rental agreement to a rental agent or property manager, you do not have to file a 1099. If, however, you pay rent to a private landlord, you must issue a 1099 to that individual unless they fall under a different exception. Employees who are paid a formal salary, as well as business travel payments to employees, are not subject to 1099 forms. Likewise, payments to tax-exempt organizations don't receive a 1099.
If you pay for services using PayPal, credit cards, or other third-party means, you should use a 1099-K rather than a 1099-MISC.
What Information Do You Need for Filing Form 1099-MISC?
Before you file a 1099, you'll need specific information to complete the form. Usually, you will collect this information on a W-9 form, which the contractor fills out at the beginning of their contract. This will include the contractor's name, business name (if different), federal tax classification, any relevant exemption codes, address, and tax number or social security number.
State Filing Considerations
You should check with your state government. Some states have additional deadlines and filing requirements related to 1099-MISC forms for the state.
Mailing vs. E-Filing
If you are issuing more than 250 1099-MISC forms, you may not mail the forms in. In this case, they must be e-filed.
Deadline to Payees
You must issue 1099s to the IRS and all vendors by January 31st.
If you need help with who needs a 1099, you can post your legal needs on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.