What Dentists Need to Know About Sending 1099 Forms

It's that time of year again to send 1099s to your vendors. There have been a number of changes and updates regarding the reporting rules for 1099 forms over the past few years. Here is what dentists need to know about sending 1099 forms.  

What is Form 1099-NEC?

Beginning with the 2020 tax year, the IRS requires businesses to report nonemployee compensation on the new Form 1099-NEC instead of on Form 1099-MISC. Use this form if you made payments totaling $600 or more to nonemployees, such as independent contractors, freelancers, or self-employed individuals.

What is nonemployee compensation?

In general, you must report payments you make if they meet the following four conditions:

  1. The payment is made to someone who is not your employee

  2. The payment is made for services in the course of your trade or business

  3. The payment is made to an individual, partnership, estate, or in some cases a corporation

  4. The payment total is at least $600 for the year

Additionally, businesses will need to file Form 1099-NEC if the business has withheld any federal income tax under the backup withholding rules regardless of the amount of payments for the year to the nonemployee.

Nonemployee compensation can include:  

  • Fees

  • Benefits

  • Commissions

  • Prizes and awards for services performed by a nonemployee

  • Other forms of compensation for services performed for your trade or business by an individual who is not your employee

What is Form 1099-MISC?

Because the IRS moved reporting of nonemployee compensation to Form 1099-NEC for tax year 2020 and onward, Form 1099-MISC is now used to report:

  • At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest

  • At least $600 in:

    • Rent

    • Prizes and awards

    • Other income payments

    • Generally, the cash paid from a notional principal contract to an individual, partnership or estate

    • Any fishing boat proceeds

    • Medical and health care payments

    • Crop insurance proceeds

    • Payments to an attorney

    • Section 409A deferrals or

    • Nonqualified deferred compensation

  • You should also receive Form 1099-MISC from any business or person that withheld any federal income tax on your behalf under backup withholding rules, regardless of amount withheld or the amount paid.

How is Form 1099-NEC different from Form 1099-MISC?

Form 1099-MISC differs from Form 1099-NEC in one well-defined way. A business will only use a Form 1099-NEC if it is reporting nonemployee compensation.

If a business needs to report other income, such as rents, royalties, prizes, or awards paid to third parties, it will use Form 1099-MISC. Generally, a person will now receive 1099-MISC to report payments that are not subject to self-employment taxes.

Who should receive a 1099?

As a general rule, you must issue a Form 1099-MISC to each person to whom you have paid at least $600 in rents, services (including parts and materials), prizes and awards or other income payments.

You are required to issue 1099-MISC reports only for payments you made in the course of your trade or business, and you'll send it to any individual, partnership, Limited Liability Company, Limited Partnership or Estate. You do not need to issue 1099s for payment made for personal purposes.

File Form 1099-MISC 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.

  • 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.

  • Generally, the cash paid from a notional principal contract to an individual, partnership, or estate.

  • Payments to an attorney.

  • Any fishing boat proceeds.

In addition, use Form 1099-MISC to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.

Who doesn’t need to receive a 1099?

You don't need to issue 1099s for payments made for personal purposes. Payments for which a Form 1099-MISC is not required include all of the following.

  • Generally, payments to a corporation (including a limited liability company (LLC) that is treated as a C or S corporation).

  • Payments for merchandise, telegrams, telephone, freight, storage, and similar items.

  • Payments of rent to real estate agents or property managers. However, the real estate agent or property manager must use Form 1099-MISC to report the rent paid over to the property owner.

  • Wages paid to employees (report on Form W-2, Wage and Tax Statement).

  • Military differential wage payments made to employees while they are on active duty in the Armed Forces or other uniformed services (report on Form W-2).

  • Business travel allowances paid to employees (may be reportable on Form W-2).

  • Cost of current life insurance protection (report on Form W-2 or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.).

  • Payments to a tax-exempt organization including tax-exempt trusts (IRAs, HSAs, Archer MSAs, Coverdell ESAs, and ABLE (529A) accounts), the United States, a state, the District of Columbia, a U.S. possession, or a foreign government.

  • Payments made to or for homeowners from the HFA Hardest Hit Fund or similar state program (report on Form 1098-MA).

  • Compensation for injuries or sickness by the Department of Justice as a public safety officer disability or survivor's benefit, or under a state program that provides benefits for surviving dependents of a public safety officer who has died as the direct and proximate result of a personal injury sustained in the line of duty.

  • Compensation for wrongful incarceration for any criminal offense for which there was a conviction under federal or state law.

Do I need to prepare a 1099 for credit card payments? 

You do not need to prepare a 1099-NEC or 1099-MISC for credit card payments. This includes payments you make with:

  • Credit cards

  • Debit cards

  • Store-valued cards

  • Mobile wallets (e.g., PayPal)

Only prepare a 1099-NEC or 1099-MISC if you pay the contractor using cash, check, or a similar payment method. 

Do foreign contractors require 1099s?

Generally, no Form 1099 is required for payments to foreign contractors or services performed outside the United States and no withholding is required (as long as the foreign contractor is not a U.S. person and the services are wholly performed outside the U.S.) Rather, you will need to ask the contractor to complete a Form W-8BEN, which certifies that the foreign contractor is not a U.S. taxpayer.

What are the deadlines?

Here are the 2023 deadlines for payments in 2022 requiring Form 1099s:

Form

1099 Due Date to Deliver to Recipients

Due Date to File Forms with the IRS by MAIL

Due Date to File Forms with the IRS via E-FILE

1099 NEC

January 31, 2023

January 31, 2023

January 31, 2023

1099-MISC

(No Data in Boxes 8 or 10)

January 31, 2023

February 28, 2023

March 31, 2023

1099-MISC

(WITH Data in Boxes 8 or 10)

February 15, 2023

February 28, 2023

March 31, 2023

1099-B, 1099-S

February 15, 2023

February 28, 2023

March 31, 2023

1099-INT, 1099 DIV, 1099-C, 1099-R, 1098, 1098-T

January 31, 2023

February 28, 2023

March 31, 2023

Copies B, C, 1, and 2 have been made fillable online in a PDF format available at IRS.gov/Form1099MISC and IRS.gov/Form1099NEC. You can complete these copies online for furnishing statements to recipients and for retaining in your own files.

Send in the transmittal Form 1096 to the IRS before February 28. Your accountant with the proper system can submit the 1096 and stack of 1099s electronically by March 31. Don't forget, that depending on state law, you may also have to file the 1099-MISC with the state.

Keep in mind there is no automatic 30-day extension to file Form 1099-NEC, and the IRS won't automatically share information with states. Businesses will need to send Copy 1 of the form to state tax departments themselves.

What are the late filing penalties?

If you fail to issue a form by the 1099-NEC or 1099-MISC deadline, the penalty varies from $50 to $280 per form in 2022, depending on how long past the deadline the business issues the form. There are maximum fines per year for small businesses. If a business intentionally disregards the requirement to provide a correct payee statement, it's subject to a minimum penalty of $570 per form in 2022 or 10% of the income reported on the form, with no maximum.

How can Form W-9 help with this process?

Requesting a W-9 from any vendor you expect to pay more than $600 before you pay them will give you the vendor’s mailing information and Tax ID number. It will also require that the vendor indicate whether they are a corporation or not (saving you the headache of sending them a 1099 the next year.

Where can I get 1099 forms?

You can use an online service or tax preparation software to help you fill out the 1099 forms using your computer. You would then print and mail the forms to the IRS yourself. 

You can order the tax forms (including Form 1099), instructions and publications here. The IRS will process your order and ship it by U.S. mail when the products become available.

You can also try an IRS service center, business supply stores like OfficeMax, or grab them while supplies last from the post office or library.

Are there different types of 1099 forms?

Yes, here are the most common examples of filing requirements where you do not need to report outgoing payments.

  • Form 1099-K: Used for reporting receipts collected from third party transaction networks such as PayPal. If you have an online store or pay employees or contractors via a third-party site, you will likely need to report with a Form 1099-K.

  • Form 1099-CAP: Issued to shareholders when they receive cash, stock, or property in a transaction.

  • Form 1099-C: Used only for organization that are in the business of lending money. Form 1099-C is for reporting canceled debts.

  • Form 1099-DIV: For companies that issue stock and dividends. Dividend payments must be reported on a Form 1099-DIV.

  • Form 1099-S: This form is used to report profits from real estate transactions. You do not need to issue this form if the real estate transaction is $250,000 or less for the sale of a primary residence or if the transferor is a government entity of corporation.

  • Form 1099-INT: Financial institutions must issue this form for interest income payments exceeding $600 within one year.

Organizing and filing the proper 1099 forms can be confusing and complicated. Gulf Coast Accounting & Tax is here to help. We have the knowledge on how to organize and consolidate your 1099s into a simple and efficient package you can send to your vendors. Contact us when we can be of assistance.

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