New 1099 Deadlines for 2017
In an attempt to combat tax return fraud, the IRS has made changes to certain reporting deadlines. The two changes with the biggest small business impact are reporting the information from Forms W-2 (Wage and Tax Statement) and 1099-Misc (Miscellaneous Income). Since most businesses use payroll companies for wages, I wanted to focus on the reporting of Nonemployee Compensation through Form 1099-Misc.
Who Gets Form 1099?
Generally, any individual or non-corporation entity that you paid $600 or more to in 2016 should be getting a 1099 from your business. The payments include payments for rents, services, prizes and awards and other types of “miscellaneous” income. Vendors or contractors that are taxed as C-Corporations or S-Corporations do not need to be issued Form 1099. Fees paid to a lawyer of $600 or more should be reported in Form 1099 regardless of the business structure.
How Do I Know How the Vendor is Taxed?
The best practice is to require everyone you do business with to identify themselves to you. For vendors and contractors, that happens with Form W-9 (available here from the IRS website). My recommendation is to ask for this when you first start working with a new vendor or contractor and then periodically ask for updates. If you are missing a completed Form W-9 for a vendor or contractor that you, now is the time to get it.
You’ll need the most accurate information possible regarding the payee’s legal name, address and tax identification number. Incorrectly issued 1099s can “bounce” in the process which adds to your filing time and causes headaches.
By When Do I Need to Issue Form 1099?
January 31, 2017 is the date that recipients of Form 1099 should receive them. That date hasn’t changed in a while. What has changed is the date the IRS expects to get the 1099s from you. As of January 1, 2017, issuers of Form 1099 for non-employee compensation (BOX 7) are required to submit those copies to the IRS on January 31st as well. This is a big change. In year’s past paper copies of Form 1099 were due at the end of February and electronic copies were due at the end of March.
What Are the Penalties Involved?
From the perspective of a business owner, the penalties can be pretty steep for filing Form 1099 late or failing to file them at all.
The following tables from the IRS website lay out the penalties which are based on the size of a business gross receipts.
The bottom line with the timing changes is that it is prudent to have accurate and timely information in your financial reporting. Using a proper accounting system and working with a professional will make changes like these go smooth;y. With the right system and the right help, these changes should have a low impact to your business.