New year is good time to review basic rules surrounding Forms 1099-MISC and W-9

For most businesses, January means the annual completion of Forms 1099-MISC, which makes this a good time to review the basics surrounding this standard reporting procedure.  In general, amounts paid in the course of your trade or business to a non-corporate business or individual entity over the amount of $600 must be reported as income on either Form 1099-MISC or Form 1099-NEC, and the recipient of the income must provide a valid taxpayer identification number (federal EIN or social security number if the vendor is a sole proprietor) via Form W-9.

Form 1099-MISC is used for the following type of payments:

  • rents,
  • royalties ($10 or more),
  • prizes and awards,
  • medical and health care payments (even if they are a corporation),
  • gross payments to an attorney that are not for services (even if they are a corporation),
  • non-qualified deferred compensation; and,
  • other income payments and miscellaneous items.

The new Form 1099-NEC is used to report the following types of payments:

  • services performed by someone who is not your employee (including parts and materials),
  • payments to an attorney for services (even if they are a corporation); and,
  • cash payments for fish purchased from anyone engaged in trade or business of catching fish.

Getting accurate, complete information from a vendor via Form W-9 is crucial, as it ensures your Form 1099 forms can be filed without delay or error.   Should a vendor refuse to provide a W-9 form detailing such information, or if the W-9 provided is incomplete or inaccurate, the payor must attempt to collect accurate information. If the payment has already been made, you need to file the Form 1099-MISC or 1099-NEC with the information that you have, even if incomplete. If the vendor ultimately refuses to supply the necessary information, then the payor must take out backup withholding from the payment at a rate of 24% and remit to the IRS.  Note that each state also has its own filing and withholding requirements.

As policy and to avoid penalties, companies should require an accurate and complete W-9 form before issuing any payments to vendors. For more specific information, contact a ShindelRock tax professional.