If it weren’t for the last minute, nothing would get done.
– Rita Mae Brown
Have you gathered all the W-9s that you need in order to file your 1099-MISC forms in January? If so, then you’re in fantastic shape and you can read on to see some important deadlines. If not, the best time to send a W-9 request is right now!
If you’re unsure what a W-9 or 1099-MISC is, we can help bring you up-to-date.
Important note: This year the IRS is rolling out a new Form 1099-NEC, which you will most likely have to file if your business has paid any independent contractors in 2020. See the section further below for more information about the 1099-NEC.
What is a 1099-MISC?
If you’ve been doing some Googling to get more information on 1099s and W-9s, you might be frustrated by some online articles that skip ahead to IRS rulings without really explaining what the forms are for. Even worse, much of the official IRS documentation on tax matters is rather opaque.
We at TL;DR Accounting feel that learning and sharing knowledge are worth some extra time and effort. After all, that’s one of the reasons we do these regular blog posts! Here’s some information to get you started on 1099s and W-9s:
- The 1099-MISC is the form that every business must file for every independent contractor to whom it has paid $600 or more for anything except non-employee compensation in the year 2020. Its purpose is to report the amount you paid to the vendor to the IRS. Basically, it’s a way for the IRS to prevent contractors from dodging their taxes by being paid “under the table.”
- An independent contractor is an unincorporated entity who has provided goods or services to your business. That’s right, corporations are by definition not independent contractors.
- Note that we said “anything except non-employee compensation.” This is because the new Form 1099-NEC is specifically for the kind of income that used to go into Box 7 of the 1099-MISC. See the next section about Form 1099-NEC.
- A Form W-9 is an IRS form that independent contractors should fill and give to you. This form contains essential information that you need in order to file the 1099. It is not necessary to get a form W-9 from vendors or service providers who are corporations. For example, you don’t see businesses scrambling to get a W-9 from Amazon every year.
- When in doubt, ask for a W-9. That is to say, if you don’t know whether your goods or services provider is an independent contractor, ask them for a W-9. A properly filled-out W-9 will show you the answer.
- If you receive an improperly-filled or incomplete W-9, notify the sender and request a corrected form. You need this information, and by selling goods or services to you, they are implicitly agreeing to provide you a correctly-filled W-9.
Hopefully we’re all clear on what a 1099-MISC, 1099-NEC, and W-9 are and who is expected to fill them. Quick review: The customer fills out the 1099-MISC or 1099-NEC, and the vendor fills the W-9.* As you know, there are other kinds of 1099s (1099-INT, 1099-DIV, etc.) but the 1099-NEC and 1099-MISC are the most common forms that a small business would need to file.
What’s the New Form 1099-NEC?
Way back in the early 1980s, the IRS used a form called the 1099-NEC, which was just like the 1099-MISC except it was specifically for non-employee compensation. For whatever reason, they abandoned this form after 1982, only for it to return almost 40 years later. That’s right, as rough as 2020 has been, we didn’t expect to have to also wrestle with an undead tax form, but here we are.
The way to fill out a 1099-NEC is so similar to how a 1099-MISC is filled that they share the same instruction webpage (scroll to the bottom to see instructions specific to Form 1099-NEC). Just remember that on a 1099-NEC, non-employee compensation goes into Box 1. There are also some large greyed-out boxes on the 1099-NEC, which hopefully makes filing them simpler. We don’t know why Boxes 2 and 3 are labeled and also greyed out. Our best guess is that the IRS wanted both forms to have Box 4 for Federal Taxes Withheld (except that the boxes are in different places).
With definitions out of the way, let’s move on to the dates that you need to know. 1099-NEC forms are due on January 31, 2021. It’s likely that most or all of the 1099 forms you fill will be 1099-NEC forms. This is because “non-employee compensation” is a kind of “catch-all” for amounts you pay to a vendor who is an independent contractor. One common exception is landlords — rents paid are entered into Box 1 on Form 1099-MISC. 1099-MISC forms are not due until the end of February. But you might as well do all your 1099s at once, right?
If we are filing your 1099s for you, we need your W-9s by January 7, 2021. If you don’t have W-9s for your vendors, please request those W-9s right away! Alternatively, we can request W-9 information from your vendors on your behalf. In this case we will need the names and email addresses of all of your independent contractor vendors as well as amounts paid to each of them, and what kind of good or service was provided.
Exceptions to the 1099 Filing Requirement
Let’s end this article with some good news, and review all the circumstances under which you are not required to file a 1099.
You are not required to file a 1099 for a vendor or expense if:
- The expense is a personal expense. Naturally, if it’s a personal expense, you can’t deduct it as a business expense.
- Note that you might have both business and personal expenses paid to the same vendor in the same year. For example, maybe Ron’s Lawns cares for your home lawn and the lawn for your office. In this case, ensure you’re separating the expenses properly, and file a 1099 for only the total of the business expenses.
- The total of all amounts you paid to the vendor in 2020 was less than $600. This $600 threshold is old and not linked to inflation, and in our opinion it’s long overdue for an increase.
- The vendor is a corporation. On a properly filled W-9, the vendor will declare what kind of business entity they are right below their business name.
- If they mark “S-Corporation” or “C-Corporation” then they are a corporation, naturally.
- If they checked “Limited liability company” (LLC) then you are only exempt from filing a 1099 for them if they put a “C” or an “S” in the tax classification field to the right.
- If LLC is checked and the field to the right is blank, the W-9 is improperly filled and you should contact the vendor.
- You paid the vendor through PayPal or using a credit card. That’s right, even if you pay more than $600 to an unincorporated entity, you still don’t have to file a 1099 if you use PayPal or a credit card. If you’re wondering why this is, remember that the purpose of a 1099 is to prevent tax-dodging. Well, PayPal and credit card transactions are reported to the IRS already, so you don’t have to report these payments yourself.
Let’s wrap up with one final reminder: Improperly-filled W-9s are a thing, and you may receive one from a vendor for your business. This is all the more reason to get your W-9s early and check them over so that you have enough time to rectify any errors and get the information you need!
TL;DR: Get those W-9s as early as you can! A W-9 is a form that a vendor (who is not a corporation) provides to you so that you can fill a 1099 for them. The 1099-NEC is due at the end of January and the 1099-MISC is due at the end of February. If we are filing your 1099s for you, though, then we need your info by January 7th, 2021. If you’re unsure about whether a vendor is a corporation, there’s no harm in just asking them for a W-9. Do this early so that you’re not scrambling at the last minute with an incomplete W-9! Reach out to one of our friendly accountants any time.