The 1099 Story: Which Version Should You Be Using?

Nov 4, 2021 | Tax News

Form 1099

As each calendar year draws to a close, many businesses have to think about their tax filing responsibilities. It can be confusing to figure out which forms to send out, especially as the IRS made some recent changes to its venerable 1099-MISC form and assigned some of its former responsibilities to the relatively new 1099-NEC.

Do you have freelancers? Many businesses use freelancers — independent contractors — instead of or in addition to regular employees. Companies need to send these workers 1099-NECs if they paid them at least $600 during the year.

What about other payments? Although Form 1099-MISC is no longer applicable for freelancers, it still has plenty of uses:

  • Rents.
  • Prizes and awards.
  • Other income payments.
  • Medical and health care payments.
  • Crop insurance proceeds.
  • Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
  • Generally, the cash paid from a notional principal contract to an individual, a partnership or an estate.
  • Payments to an attorney.
  • Any fishing boat proceeds.

All these sources of income require Form 1099-MISC for payments of at least $600. However, for royalties or broker payments in lieu of dividends or tax-exempt interest, the threshold is $10. In addition, Form 1099-MISC is used to report direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.

And don’t forget Form W-9

It’s important for independent contractors to send Form W-9 to any client they’ve worked for during the year. It basically confirms the contractor’s name, address and Social Security number, and companies need this to properly fill out the 1099-NEC when tax season rolls around.

This is just a summary of the 1099 situation for both companies and payees. There are other rules and provisions as well. Be sure to contact us if you have questions or need help.

Contact us at 703-218-3600 or click here. To review our personal financial planning articles, click hereTo review our tax news articles, click here. To learn more about MCB’s tax practice and our tax experts, click here. 

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