Form 1099 Rules & Regulations
Here are some guidelines to help determine if a vendor needs to be set up as a 1099 vendor.
Who must file Form 1099?
Persons engaged in a trade or business must file Form 1099 MISC when certain payments are made. A person is engaged in business if he or she operates for profit; thus, personal payments aren’t reportable.
Payments to Report
A Form 1099 MISC must be filed for each person to whom payment is made of:
- $600 or more for services performed for a trade or business by people not treated as employees;
- Backup Withholding (all amounts);
- Rent or prizes and awards that are not for service ($600 or more) and royalties ($10 or more);
- All payments to crew members by owners or operators of fishing boats;
- Payments of $600 or more to a supplier of health and medical services; and
- Crop insurance proceeds.
Payments made to corporations, except those made for medical or health care services and attorney fees, are not required to be reported on Form 1099 MISC.
Non-Employee payments – Non-employee payments are reported in Box 7 of Form 1099 MISC. Non-employee payments include fees, commissions, prizes and awards, and other forms of compensation provided for services performed for a trade or business by an individual who is not an employee. If the following four conditions are met, a payment generally is reportable as non-employee compensation:
- The taxpayer made the payment to someone who is not an employee;
- The payment was made for services in the course of a trade or business;
- The payment was made to someone other than a corporation; and
- Payments of at least $600 were made to the payee during the year.
Real Estate Agents
Real estate agents must report on Form 1099 MISC rents collected for property owners before deduction of commissions, fees, or other expenses if the amount paid to any one property owner totals $600 or more during the calendar year.
Payments for Services
When a business pays an independent contractor for services performed in the course of that business, the service recipient must file Form 1099 MISC if the payment is $600 or more for the year, unless the service provider is a Corporation.
Direct Sales
The law requires information reporting on Form 1099 MISC for certain direct sellers. This requirement applies to persons who, in the course of a business, sell consumer products on a buy/sell basis, deposit/commission basis, or any similar basis to any buyer who (1) sells such product in a home or other than in a store or (2) sells these products to another seller. Sales of $5000 or more are reportable.
Deceased Employee Wages
If an employee dies during the year, the employer must report the accrued wages, annual leave pay, and other compensation paid to an estate or beneficiary after death on Form 1099 MISC; this applies whether the payment is made in the year of death or after the year of death.
Listed below are a few examples of payments that should be reported on Form 1099-MISC
Medical Services
- Medical & Dental Services
- Hospitalization
- Medical Assistance Benefits
- All payments to Medical Service Corporations
Non-Employee Compensation
- Occasional Salaries & Wages (to Non-Employees)
- Professional Service Payments
- Advertising
- Appraisal
- Architectural
- Attorney
- Auditing
- Board Members
- Chaplains
- Computer Programming
- Consulting
- Design & Testing
- Engineering
- Evaluation Consultant
- Graphic Artist
- Institution Contracts
- Teacher/Instructor
Maintenance & Repairs
- Commercial Repairs – Hwy Vehicles
- Contracted Repairs
- Computer Repairs
- Extermination Services
- Janitorial Services
- Maintenance Agreements
- Protection & Security Services
Law Enforcement & Court Services
- Court Reporters
- Court Appointed Workers
- Expert Witnesses
- Prison Labor Allowance
- Non-Employee Allowance
Other Services
- Armored Car
- Cleaning
- Construction
- Keypunch
- Laundry
- Parcel & Delivery
- Printing
- Refuse Collection
- Security
Rents (except rent paid to real estate brokers)
- Real Property
- Other Property
Note: This is only a partial listing of accepted 1099 MISC Vendors. If a vendor is entered as a 1099 vendor and it doesn’t look correct, the Vendor Maintenance team will research the problem. It may mean a phone call to the person who entered the vendor or a phone call to the vendor directly.
For more information Please visit my company website. L & R Tax Preparation.
Making Work Pay tax credit
April 1st was implementation day for the Making Work Pay tax credit, and it wasn’t an April Fool’s joke. The American Recovery and Reinvestment Act of 2009 (ARRA), Congress’ most recent effort to “stimulate” our economy, contains this new tax credit, which will affect everyone when filing your individual return. You may be able to take advantage of an income tax credit of as much as $400 ($800 for a married couple) on your personal tax return for the next two years.
The Making Work Pay tax credit served as centerpiece of the tax reduction provisions of the ARRA. President Obama strongly pursued its inclusion in the legislation because it would put money back into the pockets of working people. The annual tax credit (available in 2009 and 2010) is equal to 6.2% of earned income, to a maximum credit of $400 for an individual ($800 for a married couple filing jointly). The Key is “a maximum credit of $400 per working individual”. Dependants have no bearing on this.
Technically, taxpayers will receive the tax credit when they prepare and file their tax returns a year from now for 2009 (and then for 2010 the next year). However, practically speaking, taxpayers that receive wages from employment in 2009 will receive the tax credit in small increments throughout the year. How? The IRS in late February issued a new set of withholding tables structured to informally pay the amount of the tax credit over the course of the year by reducing required withholding amounts on payroll.
The Issue
The new withholding are designed to save employees roughly $10 per week for the rest of the year (40 weeks x $10 = a $400 tax credit). This isn’t working out for a lot of people. Several of my clients have called me because they are having more taken out then the ten dollars, some are even getting as much as forty-three dollars more a week.
This is a problem and will affect refunds and or amount due/s. Why, because you aren’t having as much withheld, and tax tables on your income haven’t changed. Withholdings went down, not income tax on your earnings.
The IRS produced new withholding tables in February and asked employers to implement them by April 1. But, withholding tables are a blunt instrument, unable to precisely assess taxes for everyone’s unique situations. Employers who use the tables don’t know workers’ complete situation, such as whether an employee has a second job or is married to someone who also works. That means some workers will end up with more cash than they’re eligible for under the new credit.
Adjustments may have to be made by individuals to make sure they’re not over- or under-withheld.
Again, the lower withholding may cause some unwanted results for taxpayers with more than one job, two-earner married couples, and high-income taxpayers.
The Fix
The IRS is aware of this issue and warns taxpayers that they (individual taxpayers) are responsible for making sure their withholdings are correct. This means that you are ultimately responsible for making sure you have enough withheld from your checks using your form W-4.
The first thing you can do is make sure your employer has these new tables. The new tables and instructions are found in IRS Publication 15-T. The next thing to do would be to Contact your tax professional and discuss this with them.
If that isn’t a viable option you can contact me I will be glad to help.
Beware, though, because the credit is phased out as your adjusted gross income exceeds $75,000 for individuals ($150,000 for married couples filing jointly). If your income exceeds $95,000 ($190,000 for married couples filing jointly), then you will not be able to receive any benefit from the Making Work Pay tax credit.
Timing is everything, especially with taxes … and tax information.
The IRS has an online calculator that reflects the new stimulus act withholding tables to help you get your amount just right. Armed with your most recent tax return and paycheck stub, you can in 10 minutes or so fill in the required information and get instructions on filling out a new W-4. You should use the calculator now. Then again, later in the year to ensure your assumptions are on track (around the end of October). You can always make a tweak or adjustment with your very final paychecks for the year so you don’t have any penalty or big surprise.
If you don’t have the time to run through the calculator — it involves entering various tax-related figures, including expected credits and the like — there’s another way: Submit a new W-4 filled out the same way as your old form but with one exception: On line 6, add the extra dollar amount to be withheld from each paycheck. See Form W-4 on IRS site (PDF).
The easiest way might be to leave the number of allowances alone, see how much they’re reducing your withholding by and then on line 6 write in that you want them to withhold an extra amount.
But remember: That W-4 stays in effect until you file a new one. If you don’t want the same additional amount to be withheld starting in January, file a new W-4.
There’s a third option: Don’t worry about the credit now, and just wait until you file in 2010 to pay the bill. Not recommended by me unless your checks are exactly $10.00 more per week.
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