pile of 1099 forms

For small business owners’ employee paperwork is a task that never ends. If it’s not a new hire, it’s tax season or worker’s comp, and each form looks different no matter how many times you see them. Keep reading to help take the mystery out of an old tax season nemesis – the 1099 Form.

1099 workers are freelance or independent contractors – rather than employees. No one can be an independent contractor and an employee; they must be one or the other. The best way to make your life simple before you even pay a vendor is to request their W-9. This form will have all of the information you need if and when you have to issue them a 1099 form.

The Basics of a 1099 Form

Your business will need to issue a 1099 to vendors or subcontractors during the ordinary course of business to whom you have paid more than $600 in rent, services (including parts and materials), prizes and awards, or other income payments. This includes any individual, partnership, LLC, LP, or Estate.

Note: The IRS defines an employer/employee relationship as one in which the employer controls the workspace, hours worked, and the equipment to be used, and directs the daily and weekly activities of the worker.

The Exceptions

Doesn’t it all seem so simple, right? This is where the ‘exceptions to the rule’ come in! Below are exceptions to the basic 1099 rules. You do not need to send a 1099 form to:

  1. Vendors are operating as S or C-Corporations. This includes LLCs and partnerships which are taxed as an S or C-Corp.
  2. Any payments you have made via credit card, debit card, gift card, or third-party payment network (i.e PayPal). These payments will be reported by the card issuers or payment networks themselves.
    1. An exception to this exception is Venmo. Venmo does not do the same reporting as credit cards and regular payment networks. You will need to issue 1099s to vendors paid this way.
  3. Any employee business expense reimbursements. These can be reported as wages on a form W2.
  4. Payments of rent to or through real estate agents (or property managers). If your business pays rent directly to a landlord, a 1099 form will need to be issued.
  5. Non-US citizens working remotely via the internet from another country.

Other exceptions include:

  1. Lawyers – even if your lawyer is ‘incorporated’ you are still required to send them a 1099 form if your business paid them more than $600.
  2. A 1099 form is required for any worker who is not a U.S. citizen and has performed work for you within the United States It is the business owner’s responsibility to determine the citizenship of their workers.
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