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1099 Forms

Understanding Form 1099

A Form 1099 is an information return used to report various types of income paid to individuals or entities throughout the calendar year. While the 1099-NEC (Nonemployee Compensation) and 1099-INT (Interest Income) are the most common filings for many businesses, compliance requirements can vary significantly depending on your specific transactions. Whether you are reporting service fees, interest, or property management distributions, Anderson provides comprehensive support to ensure your filings are accurate and submitted on time.

Quick Tips for Compliance:

  • Entity Type Matters: Generally, you do not need to issue a 1099 to a corporation (S-Corp or C-Corp), though exceptions apply for legal and medical service providers.
  • Payment Method Counts: If you paid a vendor via credit card or a third-party processor like PayPal, you do not include those amounts on your 1099 filings, as those institutions are responsible for their own reporting.

Please keep in mind that a W9 form should always be filled out prior to paying your contractor. You’ll need your contractor’s Social Security Number or Taxpayer ID and address in order to ensure a proper filing is done. The W9 form is for your use only and is not submitted to the IRS. For your reference, please see the information below for each type of 1099 you may need to file:

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Types of 1099’s

1099-NEC

A 1099-NEC (Nonemployee Compensation) form is used to report payments made to independent contractors and non-employees, such as freelancers or consultants, who performed services for your business. Essentially, if you paid an individual $600 or more during the year for services rendered outside of a traditional employment relationship, you generally need to issue them this form. It helps both the payer and the recipient report the income correctly to the IRS.

1099-INT

A 1099-INT form is used to report interest income, which can include the interest your corporation pays to a shareholder who made a loan to the business. Providing this form ensures that the interest paid on the loan is properly documented with the IRS, which is critical for treating the funds as a true loan rather than a capital contribution. On a more general level, the 1099-INT is typically issued by banks and other financial institutions for any taxable interest income of $10 or more earned throughout the year from savings accounts, CDs, or bonds. This form helps the IRS track all interest income, ensuring both the payer and the recipient report the amounts correctly on their tax returns.

1099-MISC

A 1099-MISC (Miscellaneous Information) form is used by a business to report certain payments made during the year that do not fall under the category of nonemployee compensation (now reported on 1099-NEC) or interest income. Crucially, if you operate a property management company for others, you are required to issue a 1099-MISC to each property owner for whom you collected and passed on at least $600 in gross rents. This ensures the correct reporting of various miscellaneous income streams to the IRS.

The 1099-MISC is primarily used to report payments of $600 or more for:

  • Rents (e.g., payments made to a property owner by a management company).
  • Medical and Health Care Payments (e.g., payments to a physician or health care provider).
  • Prizes and Awards (that are taxable).
  • Payments to an Attorney (for gross proceeds from a settlement).
  • Royalties (for payments of $10 or more).
1099-R

The 1099-R form is used to report distributions or withdrawals from retirement and profit-sharing plans, Individual Retirement Arrangements (IRAs), annuities, and insurance contracts. This form is critical because the code in Box 7 indicates the specific type of distribution, which determines the tax treatment and whether it is subject to an additional 10% early withdrawal penalty. Since the type of distribution has major tax implications, selecting the correct code is essential for compliance.

Common Distribution Codes:

1 – Early Distribution, no known exception (generally applies if the recipient is under age 59.5 and no exception applies).

2 – Early Distribution, exception applies (recipient is under age 59.5, but the distribution qualifies for an exception, such as a distribution after separation from service at age 55 or older).

3 – Disability (indicates the distribution was paid due to the recipient’s permanent and total disability).

4 – Death (used for payments made to a decedent’s beneficiary, including an estate or trust).

7 – Normal Distribution (applies if the recipient is at least age 59.5, or for a normal retirement distribution).

G – Direct Rollover (indicates a non-taxable transfer of funds directly from a traditional retirement account to another eligible retirement plan or IRA).

H – Direct Rollover of a Designated Roth Account Distribution (used when funds from a Roth 401(k) or Roth 403(b) are moved directly into a Roth IRA).