For tax years starting in 2021, the IRS has reintroduced Form 1099-NEC to report self-employment income.  In the past, Form 1099-MISC was used to report various types of income.  Below, we will outline the different reporting requirements for form 1099-NEC.

• If total payments are $600 or more for services — not physical products, such as inventory- a 1099-NEC must be issued if you paid by Cash or Check.  
• A 1099-NEC is not required and should not be issued if it’s less than $600.  
• Payments made via Credit Card do not need to be reported.  
• Personal vendor payments do not need to be reported to the IRS.
• You don’t have to issue 1099-NEC forms to C and S Corporations, except for payments made to attorneys.
• 1099-MISC is used for reporting other payments, such as Rent or Payments to an Attorney paid by Cash or Check.

Please have a W-9 (https://www.irs.gov/pub/irs-pdf/fw9.pdf) filled out for every vendor you will be issuing a Form-1099.  A business best practice is to have this form returned to you before work commences.  When a vendor fills out Form W-9, please check that Box 3 is filled out.  If they check the box for Limited Liability Company, they must also input the tax classification (type of tax return they file) at the end of the question.  I is for Individual/Sole Proprietor, C is for Corporation, S is for S Corporation, and P is for Partnership or Trust/Estate).

The IRS has been sending out information notices regarding backup withholding. Backup withholding can apply to most payments reported on Form 1099 when the payer does not receive a Form W-9.  The W-9 form includes the payee's name, address, and tax ID number. The 24 percent withholding tax is withheld from future payments to ensure the IRS receives the tax due on this income.

Other Form 1099’s that need to be issued every year:

• 1099-INT:  Interest paid to an individual or business (non-bank) for a loan.
• 1098:         Interest Received on a mortgage to which you are the lender.

If you would like KMAF to prepare your 1099s, we have prepared a template you can fill out with all the information we will need to prepare your 1099s.  You can download it here at https://kmaf.cpa/20241099TEMPLATE.

Threshold Change for Electronic Filing

Beginning with the 2024 year 1099 returns (effective January 1, 2024), the threshold requiring payers to file electronically, as described in IRS Topic No. 801, to avoid fines and penalties, has been changed from 250 to only 10 or more information returns filed (aggregating in the calculation all types of information returns, such as payroll tax returns).  Penalties, in addition to interest, can range from $60 - $660 per information return (1099).

Deadline Change

• The deadline for filing form 1099-NEC on paper or electronically is January 31, 2025.
• The deadline for filing form 1099-MISC on paper is February 28, 2025; if filing electronically, you have until March 31, 2025.

If you have any questions regarding anything, please reach out.

Christopher Williams CPA/PFS, CFP®, MST, chrisw@kmaf.cpa

Gregory Litvinuck CPA,  gregl@kmaf.cpa

Office 410-643-4477