1099s and W-9s, oh my!! (Part 1)
Nearly every business needs to issue at least one 1099 and often more than they expected. Let me give you a little history. Prior to 2020, the most common 1099 form issued by businesses was a 1099-Misc. On that form a typical business would report rent paid to a landlord, royalties paid on books and music, and compensation paid to “non-employees.”
Effective in 2020, the IRS split the 1099-Misc into two forms. 1099-Misc is still used to report rents & royalties while the new form, a 1099-NEC, is used to report non-employee compensation.
For purposes of this blog post, I’m going to focus on the 1099-NEC, but please be aware that you may need to file 1099-Misc forms for rents & royalties, as well.
The entire purpose of the 1099-NEC form is to report compensation paid to someone who is NOT an employee. You may refer to them as “independent contractors.”
The IRS has specific guidelines to establish INDEPENDENCE. While the topic of independence is beyond the scope of this post, I encourage you to understand the rules. Misclassification of employees as vendors can prove very costly to your organization.
A 1099-NEC is an IRS tax form that the Internal Revenue Service REQUIRES all businesses (including not-for-profits and churches) to send to their vendors, if they meet the following three criteria:
The vendor is paid $600 or more in a calendar year.
The vendor is paid for services rendered (and is NOT an employee).
The vendor is not taxed as a Corporation.
Let’s look at these 3 criteria more closely.
The first criteria is that the vendor was paid $600 or more in a calendar year. That’s pretty easy to figure out. Good news! QuickBooks® will track the accumulated payments for you.
The second criteria is that the vendor is providing a service (rather than a product). So, for example, you don’t have to worry about sending a 1099 to your favorite office supply store or to your electric company. What are some typical “services rendered”?
Landscaping, janitorial, pest control and handyman services
Professional services, including your lawyer and accountant
Other business services, including a coach, IT professional, graphic designer and marketing guru
Churches should consider:
Contracted musicians
Honorariums paid to guest speakers
Paid missionaries
The third criteria is that the vendor is not taxed as a Corporation. Now you may be thinking, “how am I supposed to know that?” The answer: you get a W9 from your vendor!
Stay tuned…we’ll talk about the W9 form in next week’s post.
Barbara
