Form 1099 Annual Update
January 4, 2022 (Edited on February 21, 2022)
Taxpayers who operate a business must issue annual 1099-NEC’s, Non-employee Compensation (NEC) to any non-corporate service provider that the taxpayer’s business pays $600 or more in a calendar year. Also, taxpayers who operate a business must issue 1099-NECs to any law firm/attorney paid $600 or more in a calendar year, regardless of whether the law firm/attorney is incorporated.
Form 1099-NEC includes the name, address, taxpayer identification number, and amount paid to the service provider. Form 1099-NEC Copy A (along with Form 1096 Transmittal) must be filed with the IRS and Form 1099-NEC Copy B issued to the service provider must be mailed to the recipient by January 31st of the following year.
All items other than non-employee compensation such as rents, royalties, other income, etc. will need to be reported on Form 1099-MISC for tax year 2021. Form 1099-MISC must be filed with the IRS by paper on February 28th or electronically by March 31st of the following year.
Please note, Form 1099-MISC has box 10, “Gross proceeds paid to an attorney”, this box should only be used for settlement agreement payouts to attorneys or similar payments. Normal fees paid to an attorney for services rendered should be reported on Form 1099-NEW, box 1.
For more information, please see 1099 General Instructions:
More Details About Forms 1099
The minimum penalty for not timely filing a Form 1099 starts at $50 for each required form not filed by the January 31st deadline, and increases to $280 if not filed by August.
In order to ensure that the taxpayer/payor has the required information for Form 1099 filing purposes, the payor should request Form W-9 from each service provider. Form W-9 is for the payor’s records only, i.e. not mailed to the IRS. The purpose of Form W-9 is to give the landlord/payor the information needed to determine whether a Form 1099-NEC is required (i.e. whether “C Corporation” or “S Corporation” boxes are checked on Line 3) and lists the Taxpayer name, address and TIN to be used if a Form 1099-NEC or 1099-MISC is ultimately required. There is no need to request a Form W-9 from the service provider if the landlord/payor already knows the payee is a corporation. Also, there is no penalty for “over-reporting” and issuing a Form 1099-NEC or 1099-MISC to a corporation that is not otherwise subject to the 1099 reporting rules.
Going forward, we recommend requesting a Form W-9 from each service provider prior to payment. It is much easier to request this information upfront and prior to payment rather than waiting until after year-end to track down the information.
California Filing Requirements
California requires that you file Form DE-542 within 20 days of paying an independent contractor $600 or more or entering into a contract that calls for a payment of $600 or more. These forms can be downloaded from the EDD website at: www.edd.ca.gov/. This is an informational filing with the sole purpose of assisting the state and county agencies in locating parents who are delinquent in their child support obligations.
California no longer need Forms 1099-NEC to be filed directly with the State in addition to the Federal filing. Forms 1099-NEC filed in 2022 for the 2021 year will be provided to the state directly from the IRS through the combined Federal/State filing program for the 2022 filing season. This is a change from the prior year when copies of Forms 1099-NEC filed in 2021 for the 2020 year were required to be send to the FTB in addition to the Federal filing requirement.
For more information, please see the FTB’s website at:
CLIENT NOTE Regarding Preparation of Annual Form 1099 Returns
With the exception of our Family Office Service clients, our office does not prepare annual Form 1099 information returns. Many bookkeepers will file Forms 1099 for their bookkeeping clients. If you do not currently have a bookkeeper, we either recommend reaching out to a local bookkeeping service who may be able to assist, or there are many online companies who provide this service.
Please do not hesitate to contact our office if you have any questions regarding the information contained in this letter.
Gatto, Pope & Walwick, LLP
Certified Public Accountants