Important Form 1099 Information
Form 1099 Reporting Payments to Service Providers
Businesses that utilize the services of non-employees (independent contractors) have an annual reporting obligation if the payment for services or payment for the use of property during the calendar year is $600 or more to the vendor. These service providers conduct business in many forms such as in their own name, sole-proprietorship (DBA), partnerships (either as a general or limited partnership), trusts, limited liability companies (LLC), and corporations. Note, current law does not require reporting payments to corporate service providers (an exception applies to attorneys operating as a P.C.).
Form 1099-MISC Miscellaneous Income is used by the IRS for reporting non-employee compensation, rents, and other non-compensatory income. The Form 1099-MISC must be completed annually, issued to the service provider, and filed with the IRS, the Connecticut Department of Revenue Services, and Massachusetts Department of Revenue by January 31st.
Who are Service Providers?
These are individuals and businesses that perform services to your business. They could be a consultant, attorney, cleaning company, painter, groundskeeper, repairman, etc. The payment is for the performance of services and not the purchase of products. Thus, for example, an insurance agency would not be a "Service Provider" because the agency is selling a product, liability insurance. An individual paid to clean the offices would be a "Service Provider."
"Service Providers" would not include individuals considered to be employees of your business. Employees are issued Form W-2 and subject to income and payroll tax withholding.
Information You Need to Obtain to Get Started
You need to obtain from the service provider the legal name of the business, mailing address, and tax identification number. The IRS Form W-9 Request for Taxpayer Identification Number and Certification is the proper method for obtaining this information, and the time to obtain the completed Form W-9 is before payment is made. A good practice is to obtain a Form W-9 from any service provider, regardless of the amount paid during the year. The Form W-9 only takes a minute to complete and business owners are accustomed to providing this information. The information contained on the Form W-9 will be used by you each January when you are required to prepare and file Form 1099s. You should keep copies of the Form W-9 with the other tax records for the business.
Next you need to go through the business checking account and determine the total amount paid to a service provider during the calendar year. If the amount is $600 or more, you need to prepare a Form 1099-MISC for that provider. Once you have completed the various Form 1099-MISCs, you must complete Form 1096 Annual Summary and Transmittal of U.S. Information Returns, which is a summary form providing the IRS with information regarding the type of Form 1099 being sent in, the number of Form 1099s, and the total dollar amount being reported. If you complete 250 or more Form 1099s you must register with the IRS and submit these forms electronically.
The Connecticut Department of Revenue Services (DRS) will allow paper filing of Form 1099-MISCs for 2016 if the total is 24 or less, but requires mandatory filing if more than 24 forms. The Form 1099-MISC is submitted along with their Form CT-1096. The DRS encourages all filers to use their electronic filing system for Form 1099-MISCs through their Taxpayer Service Center. Note, you are only required to send Connecticut the Form 1099-MISCs that relate to rents paid for property located in Connecticut or for services performed in Connecticut.
For 2016 and subsequent years, the Massachusetts Department of Revenue requires filing various Form 1099s electronically through their MassTaxConnect electronic system for filing and paying taxes. You cannot paper file these forms. You will need to register with the Massachusetts Department of Revenue to create an account at MassTaxConnect. If you need assistance with registration or accessing the account, please call the Contact Center at 617-887-6367.
A business hires John C. to clean the office for $200 each month. John is paid for 10 months, or $2,000. A form 1099-MISC must be issued to John with his SSN.
Your business hires Alex H., dba Expert Bookkeeping Service, and pays $3,000 during the year. If Expert Bookkeeping does not have its own EIN (employer identification number) and instead uses Alex's SSN, then a Form 1099-MISC should be issued using the SSN and the payee would be Alex H, dba Expert Bookkeeping Service. If you issue the Form 1099-MISC to Expert Bookkeeping Service and use a SSN, the IRS will send you a notice because the payee information on the Form 1099-MISC does not match the IRS records.
Your business hires Constant Painting LLC to paint the exterior of the building for $5,000. Constant Painting LLC must be issued a Form 1099-MISC because the LLC tax classification is that of a partnership.
Your business pays annual rent of $7,500 for office and shop space to ABC Realty, LP. ABC Realty, LP must be issued a Form 1099-MISC (Box 1) because ABC Realty's tax classification is that of a partnership. Please note, if the business is paying rent to a building corporation, a Form 1099-MISC is not required because the landlord is a corporation.
Your business hires Greentree Masons Inc. to plow the parking lot during the winter. The payments are $1,300. A Form 1099-MISC is not required because the service provider is corporation.
Your business hires X,Y & Z, P.C., Attorneys at Law, for legal advice concerning a lease, and the fee is $700. Although the law firm is a professional corporation, (P.C.), payments to attorneys are not exempt from information reporting and a Form 1099-MISC must be issued.
Where Do I Get the Forms?
For more information regarding information reporting with Form 1099, go to the Publications section of the IRS website at www.IRS.gov and, in the Form and Publications section, you can obtain the Form W-9, and instructions for the Form 1099 series. For the Connecticut CT-1096 form and instructions go to the DRS website at www.CT.gov/DRS and go to their Forms and Publication section.
You can obtain the actual forms by ordering them from the IRS, online, from the Forms and Publications section, or calling 1-800-829-3676.
Forms can also be found at most office supply stores, but don't wait until the last minute because the supplies run out. The local IRS offices will have forms but the supply tends to be limited.
What Other Form 1099s are Required?
There are a number of Form 1099s the IRS has created for specific purposes or transactions. More detailed guidance can be obtained from the IRS website, in the section Forms & Publications. Within the search window, type in Form 1099 to obtain the general instructions and specific forms.
What Happens if We Do Not Issue These Forms?
The IRS can impose penalties for failure to issue a Form 1099-MISC to a service provider of up to a maximum of $260 and a separate penalty for failure to file the Form 1099-MISC with the IRS of up to a maximum of $260. Both penalties may be assessed for each occurrence and increase in amount based on how late the filing was. If there is intentional disregard, the IRS may assess up to $530 for each type of failure ($1,060 total). The States of Connecticut and Massachusetts will assess their own penalties as well. These penalties are very significant, so compliance is extremely important.
If you have any questions concerning filing requirements, please do not hesitate to contact us.
Hartford office contact: Chris Doyle (p) 860-524-4451 (email) cdoyle@WAdvising.com
Hamden office contact: Laurie Platner (p) 203-848-2406 (email) lplatner@WAdvising.com
Holyoke office contact: Peter Kravetz (p) 413-536-3970 (email) pkravetz@WAdvising.com
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