The Importance of Filing Form 1099-MISC
Author: Ryan Peterson
The penalty for failing to file Form 1099 information returns has never been higher. On June 29, 2015, the Trade Preferences Extension Act of 2015 was signed into law, increasing the penalties associated with failing to file correct information returns and provide payee statements. A failure to file information returns required to be filed after December 15, 2015, now carries a per return penalty between $50 and $250, depending on date of filing and average annual gross receipts; the maximum dollar limitations also have increased. Penalties assessed due to an intentional disregard of a filing requirement now carry a $500 per return penalty with no maximum. In light of these increased penalties, taxpayers should ensure they are in compliance with all information return reporting requirements, including the oft-overlooked Form 1099-MISC.
Know the Rules & Exceptions
Forms 1099-MISC are required to be filed for certain types of payments made in the course of a trade or business (including not-for-profit organizations) during the year that exceed a certain amount (typically $600). Common reportable payment types include:
- Rents and royalties
- Prizes and awards
- Medical and health care payments
- Services (including parts and materials) performed by nonemployees
- Federal income tax withheld from nonemployees
- Payment of attorneys’ fees and gross proceeds paid to attorneys
- Other income payments
Payments requiring 1099-MISC reporting may be subject to backup withholding at the rate of 28 percent of the amount paid if the payee fails to provide a taxpayer identification number (TIN) or the IRS notifies the payee of its intent to impose backup withholding.
The IRS offers several exceptions for payments that don’t need to be reported on Form 1099-MISC, including:
- Payments to a corporation; this exception doesn’t apply to medical and health care payments, withheld federal income tax, payments of attorneys’ fees and gross proceeds paid to attorneys or other legal service providers
- Payments to employees
- Payments for merchandise, telegrams, telephone, freight, storage and similar items
- Payments made with credit or payment cards
- Scholarships or fellowship grants
Don’t Miss a Deadline
The deadlines for filing Form 1099-MISC and the 1096 transmittal form vary depending on the recipient of the form, the information reported on the form and method of filing, as noted below:
Extensions of time to file information returns and time to furnish statements to recipients may be available.
Understand Filing Methods
1099-MISC forms must be filed electronically with the IRS if filing 250 or more forms, not including corrections. Penalties may be assessed up to $100 per information return in excess of 250 information returns if filed on paper. A waiver from electronic filing can be requested if submitted at least 45 days in advance of the filing deadline.
The February 1, 2016, due date for 2015 1099-MISC recipient copies is rapidly approaching. An analysis of filing requirements should be completed well in advance of the first deadline. During this analysis, taxpayers should complete the following steps:
- Identify general ledger accounts likely to include amounts required on Form 1099-MISC; run account analysis reports sorted by vendor and evaluate filing requirements.
- Review vendor lists for indicators of individual or partnership tax classification (first and last name, LLP, LLC, etc.) and evaluate filing requirements.
- Review individual vendor files for completed Form W-9, Request for Taxpayer Identification Number and Certification.
- If applicable, review IRS notifications regarding name/TIN discrepancies and ensure proper follow-up has occurred and been documented.
- Modify internal processes over vendor selection, documentation and accounting system setup prior to issuing future vendor payments.
Most organizations are required to file 1099-MISC information returns, and increased noncompliance penalties make a detailed review of your information return reporting more important than ever.