Hayley Stewart, IDOC Financial Services Manager
The end of the year is quickly approaching, which means you are probably thinking about your practice’s bookkeeping and all the many year-end deadlines that are going to be here before you know it. One of those deadlines you should be thinking about is the 1099 filing deadline. 1099s are due to recipients January 31, 2023. 1099s are due to the IRS on paper by February 28, 2023, or electronically by March 31, 2023. Exceptions may apply so please double check to ensure you file documents on time with both the IRS and your state.
Now let’s talk about 1099s and what you need to know when reviewing financials for possibly 1099 vendors.
What is a 1099?
A 1099 is an IRS document used to report miscellaneous payments made to non-employee individuals or business for services provided to your practice. Starting in 2020 the IRS now requires you to provide information on a couple of different forms. The most commonly used forms are going to be:
- 1099-NEC (Non-employee compensation)
- 1099-INT (Interest)
- 1099-MISC (Miscellaneous)
The 1099-NEC is used to report any payments made to independent contractors (individuals who are not employees, or businesses). The 1099MISC is used to report rents paid, legal settlements, and prize or award winnings and the 1099INT is used when you paid an individual or a business more than $10 in interest income.
Who receives 1099s?
Determining who receives a 1099 is where things get fun. There are 2 things you need to look for when determining if a 1099 needs to be sent out.
- It needs to be determined if the person/business is a corporation.
- It needs to be determined if payments to the business/person exceed the $600 reporting threshold.
How do you verify if a person/business is taxed as a corporation? You will need to request a copy of the W9 from all service providers (both businesses and individuals). The W9 will provide you with all the information you need to determine the business structure. In general, if payments are made to a corporation (S corporation or C corporation) a 1099 does not need to be sent, however if the W9 shows they are an individual, limited liability company, or partnership you may have a 1099 filing requirement. Once its determined business structure you will need to verify amounts paid throughout the course of the year. According to the IRS guidelines, the following examples may require a 1099 to be issued:
- You may need to issue a 1099INT if you made at least $10 or more in interest payments to an individual (including yourself), or a business (not a corporation) for a loan that was made through the course of business. Any interest paid in excess of $10 would be reported on a 1099INT in box 1
- You may need to issue a 1099MISC if you made payments exceeding $600 to an individual, or a business (not a corporation) for the following:
- Rents (Box 1)
- Royalties (Box 2)
- Other Income (Box 3), including prizes and awards
- You may need to issue a 1099NEC to any individual or business (not a corporation) to whom you’ve paid more than $600 for the following:
- Services performed by someone who is not your employee (including parts and materials)
- Payments to attorneys (including law firms or other providers of legal services)
*This is a limited list, there are instances where a 1099 might need to be filed, however, they are uncommon. Refer to the IRS Guidelines if you feel you might need to send a 1099MISC for additional payments.
Common examples of who practices might need to issue 1099s to:
- Fill In Doctors who were not paid through payroll
- Marketing Firms/Companies
- Accountants/Bookkeepers
- Attorneys (see exceptions below)
- Billers
- Repair & Maintenance companies (i.e. HVAC, plumbing, general carpenter)
Are there exceptions to the rules?
Of course, there are exceptions to these rules. You are not required to issue 1099s if you are not engaged in trade or business. This likely isn’t going to apply if you are the owner of a business, however, if you engaged in services for a plumber to come over to your house to fix a toilet leak you as an individual do not need to send a 1099 for the service provided.
Did you pay the service provider via a credit card? If yes, you are not required to send a 1099 as the credit card processor will include any fees you paid in the 1099k at the end of the year. I always tell my clients if they are able to pay services providers on a credit card to do so, since it will eliminate the potential 1099 filing requirements at the end of the year.
You know how I mentioned that you don’t have a 1099 filing requirement for corporations (S-corporations and C-corporations?) This is correct, unless you paid a provider for legal services or medical and health care services. If you paid for these services you are required to send a 1099NEC regardless of entity structure, unless of course, you paid via credit card, then you don’t have the requirement.
Tips to making things easier come the end of the year:
- Request for a W9 upfront, prior to any payments being made. Contractors are always more willing to provide it when requesting it prior to payment being given.
- Pay contractors with a credit card
- Periodically review your vendor list and ensure W9s are on file for all contractors. It's always easier to obtain a W9 mid-year than trying to track them down come January when they too are trying to meet the filing requirements.
- Attach a copy of the W9 to the vendor profile within your accounting software or store all W9s in a single place so you don’t have to search for each one come end of year.
If you are using IDOC Books & Benchmarks 1099 review/preparation is included with your monthly bookkeeping fee. If you aren’t currently utilizing our service and would like additional information, schedule a Practice Check-In with your PDM today.
