Need to Issue 1099′s? Here are the 2011 Requirements

With all the chaos surrounding the health care laws (Affordable Care Act) and the repeal of them, there has been a lot of confusion with what is still enacted and what has actually been repealed. In reference to the 1099 reporting requirements, everyone thought it was completely repealed by the senate vote on April 5, 2011. In reality, it repealed the requirement of incorporated businesses receiving 1099s. People with a Schedule C (sole proprietorship), Schedule E Page 1 (rental property), or Schedule F (farm) who actively participate in the trade or business must now conform to the 1099 rules. The rules require all of these entities to issue 1099s for all non-employee compensation for any payments and rent paid over $600, and all payments made to attorneys.

Some typical examples of payments that would require 1099s are:

  1. A rental property and the owner pays a maintenance worker over $600 to do random repairs around the property.
  2. A lawn company (that is not incorporated) to cut the grass and do the landscaping for the year.
  3. A sole-proprietor who is an electrician, pays independent contractors over $600 for work completed on a job.
  4. A hairdresser pays rent to the shop owner for booth rental, if the owner is not incorporated, they will need to issue them a 1099.
  5. Any of these pay an accountant over $600, or any sum of money to an attorney for their services. This affects almost all Schedules C, E (page 1), and F.

It is important to get the necessary 1099s out to the individuals or non-incorporated companies by January 31, 2012 and copies accompanying Form 1096 to the IRS by February 29, 2012. There are penalties of $30-$100 for each form that is not properly filed, and penalties of at the minimum $250 if the IRS can prove that the form(s) were intentionally disregarded.

Also, the 2011 tax forms for schedules C, E, and F have been amended to include two additional questions in regard to 1099s:

  1. Did you make any payments in 2011 that would require you to file Forms(s) 1099?
  2. If “Yes,” did you or will you file all required Forms 1099?

These questions are possibly “red flags” to the IRS Auditors for this tax year.

The information needed to prepare 1099s includes, an individual or company name, as well as their “DBA” doing business as name, address, and social security number or employee identification number. These are not as easy to obtain as one might think. It is very beneficial to have anyone who you would need to issue a 1099 to fill out form W-9. Also, Schedule C business’ maybe receiving more 1099s then before due to these new requirements. One may want to apply for an EIN rather than providing their social security number.

With these changes it is very important to talk with your tax provider as soon as possible. They have the means of helping you figure out who needs to be issued 1099s as well as file them for you.