If you paid $10 or more in gross royalties or $600 or more in rents or compensation to a person who is not an employee or to an unincorporated business you are most likely required to report the amount on a Form 1099. The payments have to be made in the course of your trade or business during the calendar year. Generally, any person, including a corporation, partnership, individual estate, and trust which makes reportable transactions must file a Form 1099. The type of reportable transaction determines the specific Form 1099 which must be filed. One of the most common forms 1099 issued is Form 1099-MISC. Form 1099-MISC is required for each person to whom you have paid during the year:
- at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest;
- at least $600 in rents, services (including parts and materials), prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish, or, generally, the cash paid from a notional principal contract to an individual, partnership, or estate;
- any fishing boat proceeds,
- Gross proceeds of $600 or more paid to an attorney during the year.
The deadline for filing paper Forms 1099 to the IRS is the last day of February following the calendar year for which the filing is made—so February 28 of this year for 2015 payments. The due date is extended to March 31st for payers who file electronically. However, you will need to have the Forms 1099 in the recipients’ hands by January 31st.
Failure to file these forms by the required deadline is considered a violation of IRS regulations and is subject to penalties. As of late June, 2015 Congress has increased the penalties for returns filed after December 31, 2015 for the second time in five years. The penalty provisions for Forms W-2 and 1099 jumped 150 percent: from $100 for a single incorrect return to $250, and the annual cap also doubled to $3 million from $1.5 million. For intentionally failing to file a return, the amount rose from $250 to $500. Of course, because there are two filing requirements for employers—returns must be filed with the Internal Revenue Service and also returns must be provided to recipients—the actual cost of a single incorrect form could cost an employer $500.
So if you are a business owner, you should have an ongoing procedure for requesting a W-9 from any vendor you expect to pay more than $600 during a calendar year. And you should definitely take the filing of these forms seriously.
With only one week to go until the deadline to get the 1099s to any eligible recipients you have worked with in the past year; please do not hesitate to contact our office if you need assistance with any last minute 1099 filings.
About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.