Form 1099 is the all-purpose player for the Internal Revenue Service. The form is used for many ordinary reporting items:
- Earnings for non-employee services
- Pension and IRA distributions
- Interest and dividends
The key to the form, make sure you file it. Every business tax return has a question which asks if you have filed all 1099’s which were required to be filed. Not sure who would answer no to this question, but the Service is serious about yoking the threat of penalties on US business to get more income reporting forms filed. A few quick general issues to consider:
- W2 and 1099: There is no instance where a W2 employee would also get a 1099. No the income threshold limit does not apply in this instance. No an employee cannot also have other non-employee earnings that shouldn’t have already been included in the W2. No bonuses cannot be put on a 1099 they must run through the W2.
- Non-employee earnings vs Other income: If you are paying someone to work for your business and you are using any of the up to date accounting systems to run your business, make sure the non-employee/contractor is getting a 1099 for Non-employee earnings. The difference between Other Income and Non-employee earnings? Non-employee earnings is subject to FICA tax when they report the income on their personal return. Other Income does not require FICA tax on those earnings. (Technically it’s self-employment tax and not FICA, but it’s really the same thing).
- Thresholds: If you are already running one 1099 for a contractor, stop stressing over the threshold limit and run it for everyone. What’s your downside, over-reporting? Allowing someone to not pick up income? Although the income does not have to be reported on a 1099, the recipient still has a responsibility for reporting it on their personal return.
- Penalties: The penalty for failure to file a 1099 is $100 per payee statement. File everyone and don’t worry about a penalty. The penalty is the lesser worry, the bigger worry is the cost of scrutiny on your business practices and income tax returns the 1099 audit could cause. Even if the entire return is correct, the direct and intangible costs of an audit is worth avoiding.
The 1099 reporting season will be upon us soon. If you want us to assess how we can help you conform to the reporting requirement, please call us soon at 314-993-4285 so we can reserve time in our schedule.