Jan. 31, 2024 is the deadline for submitting Form 1099s to recipients of certain payments your business made during the previous tax year. If you are a business owner, CFO, controller or responsible for your company's accounts payable department or tax filings, you may know that 1099s are an informational return that is required to be filed with the IRS and issued to recipients to report these payments. There is often some confusion about the 1099 process and related rules, and the Jan. 31, 2024 filing deadline sometimes sneaks up on companies.
Here are some high-level tips to ensure you are in compliance with your 1099 obligations. These tips will focus on the rules that apply to payments by accounts payable departments to vendors and service providers (partnerships, contractors and individuals) and not on other 1099 rules that apply to payments to investors for interest, capital gains or dividends they receive. Those rules are specific to the financial services industry and are usually handled by banks, brokerage firms or similar financial services companies.
The specific instructions for who must file are included on each type of 1099, of which there are many. The most common 1099 forms that impact companies' payments to vendors (such as through the accounts payable department) are the 1099-MISC and the 1099-NEC (Non-employee compensation). The 1099-MISC is used to report rent or royalty payments, payments for services performed for a trade or business by people not treated as its employees, certain payments of gross proceeds to attorneys, TV or radio show winnings, and other specific payments. The 1099-NEC is used only for contractors. See the IRS guide to information returns for more detailed information about the 1099-MISC, 1099-NEC and other 1099 forms.
At a high level, an accounts payable department principally needs to know:
Generally speaking, a good rule of thumb for determining who should receive a 1099 is that if they are not a corporation and not treated as an employee, then they should likely receive a 1099. For example, individuals and partnerships might need to receive a 1099, provided they meet the payment threshold.
If your vendor is a service provider and is a sole proprietor, contractor or partnership, then you should look to see if total payments to that vendor for services during 2023 were $600 or more. If so, you should send that vendor a 1099.
The following types of payments do not require a 1099:
The deadline for distributing 1099s to vendors is Jan. 31, 2024. If you use paper 1099s, you must then file another information return, Form 1096, to transmit the 1099 information to the IRS by Feb. 28, 2024. If you use an authorized provider of electronic 1099 transmission, no Form 1096 is required and the due date for eFiling is March 31, 2024.
Specifically, not providing a correct statement (intentional disregard) carries a penalty of $270 per 1099, with no maximum for the year. Penalties for failing to file 1099s or filing them late are as follows:
It’s not too late to clean up data by Jan. 31, 2024 to improve your 1099 situation. Here are a couple things you can do to make your 1099 process easier for the current tax year:
Baker Tilly Digital’s 1099 Automation and e-Filing product
Baker Tilly Digital’s 1099 Automation and e-Filing solution is a live integration tool that integrates data between Sage Intacct and 1099.com, saving you time on filing your 1099s each year. Our 1099 Automation and e-Filing software provides data validation to help identify missing data and improve 1099 accuracy.
If you'd like to see how 1099s are handled with Baker Tilly Digital’s 1099 Automation and e-Filing solution, watch our on-demand webinar.
You could also consider outsourcing your accounts payable function. Firms who provide outsourced accounts payable usually will help you with the 1099 process as well. If you would like to learn more about how Baker Tilly Digital can assist you with the 1099 process or provide outsourced accounts payable services, contact us today!
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.