One crucial aspect of tax reporting for organizations is filing Forms 1099, which report various payments made to individuals or businesses during the year. This blog offers filing examples and best practices to ensure compliance.

What is Form 1099?

Form 1099 is an information return used to report payments made to non-employees or independent contractors. Generally, payments to sole proprietorships, partnerships, and LLCs who receive payments for services should receive a Form 1099. You should request a completed Form W-9 from your vendor to obtain the information necessary to complete the Form 1099 prior to any initial payment. Forms W-9 can be obtained at www.irs.gov.

These forms help the Internal Revenue Service (IRS) track income that may not be subject to traditional payroll withholding. By filing Forms 1099, businesses provide recipients and the IRS with essential information about these payments.

Examples of Instances That Require 1099s

• Non-Employee Compensation - Organizations should issue Form 1099-NEC (Non-Employee Compensation) for payments totaling $600 or more to unincorporated entities or independent contractors, such as consultants or freelance healthcare professionals.
• Rent Payments - If your business pays $600 or more in rent during the year, excluding real estate agents or property managers, you must file a Form 1099-MISC for the recipient.
• Medical and Legal Services - Payments exceeding $600 for medical or legal services rendered, even if made to an incorporated entity, require a Form 1099-MISC.
• Interest and Dividends - Payments of $10 or more in interest or dividends made to unincorporated entities necessitate filing a Form 1099-INT or 1099-DIV, respectively.
• Backup Withholding - When federal and/or state income tax is withheld from a payment under the backup withholding rules, regardless of the payment amount, you must report it on the appropriate Form 1099.

New IRS Filing Regulation

The IRS issued a new regulation mandating electronic filing for entities that file more than ten information returns in a calendar year. This long-anticipated reduction in the e-filing threshold, previously set at 250 forms, was authorized as part of the Taxpayer First Act of 2019. The e-file threshold of ten is effective for returns required to be filed on or after January 1st, 2024; therefore, it will apply to 2023 forms due in January 2024. To determine whether you must file information returns electronically, companies must add the number of information returns (see the list below), and the number of Forms W-2 required to file in a calendar year. You must file all electronically if there are at least ten returns in total.

The following information return forms must be added together for this purpose: the Form 1099 series, Forms W-2, W-2AS, W-2GU, W-2VI, and Form 499R-2/W-2PR (collectively Forms W-2), Form 1042-S, the Form 1094 series, Form 1095-B, Form 1095-C, Form 1097-BTC, Form 1098, Form 1098-C, Form 1098-E, Form 1098-Q, Form 1098-T, Form 3921, Form 3922, the Form 5498 series, Form 8027, and Form W-2G.

Best Practices

Consider the following best practices to ensure accurate and efficient filing of Forms 1099:

• Gather Vendor Information: Request completed Form W-9s from vendors before making payments.
• Monitor Payment Thresholds: Identify vendors who have received $600 or more and are required to receive a Form 1099.
• Stay Updated with Regulations: Keep current on tax regulations, as they may change annually.
• Timely Filing and Distribution: Aim to file and distribute 1099 forms by the respective deadlines.
  • Form 1099-NEC is due to the recipient and IRS by January 31st.
  • Forms 1099-MISC, 1099-INT, and 1099-DIV are due to recipients by January 31st, but the IRS deadline is typically February 28th or March 31st (if filed electronically).
• Seek Professional Guidance: As tax regulations can be complex, consider engaging the services of a trusted public accounting firm experienced in medical practices.
  

How Lutz’s Client Advisory Services Can Help

Seeking the guidance of Lutz’s experienced Client Advisory Services team can provide further assurance and support in navigating the complexities of accurately filing Forms 1099. For questions, please contact us at info@lutz.us. You can also learn more by reading our Accounting Guide for Private Medical Practices.