We’re closing in on 1099 season, so we’re here to help you determine if you need to send any or if you should expect to receive any. If you are unfamiliar, a 1099 is a tax form that a business owner sends out to both their contractors and the IRS each year, letting both parties know how much was paid to them during the previous tax year.
If you paid any contractors this year, you might be required to send them a 1099. Conversely, if you were paid as a contractor this year, you may be receiving one. This is something you will want to be thinking about as 2021 winds down.
WHO NEEDS A 1099?
So how do you know whether a contractor receives a 1099 from your business or not? Here is a quick checklist that runs down all the criteria the contractor must meet in order to require a 1099 be sent to them:
- You paid them at least $600– If you paid them $599 or less for any services during the entire year, no 1099 is required.
- They are a US citizen- If they are not a US Citizen, you do not send them a 1099.
- They are an individual and not a corporation- If they are a registered business entity (S Corp, C Corp, etc.) you do not need to send them a 1099.
- You paid them via cash or check and not a third-party source- If you paid them via a third-party source, meaning it didn’t come directly from your bank account to them, you do not need to issue a 1099. The two big third-party sources are credit cards and PayPal. It could also be places like Upwork, etc. NOTE: PayPal Business accounts issue the 1099’s for you however, Personal PayPal Accounts “Friends and Family Payments” leave you responsible for 1099 issuance.
Changes are taking effect January 1st, 2022 regarding form 1099-K. These changes won’t be seen until 2023 when 1099 forms are sent out. We will provide more info on those changes in the coming weeks.
In conclusion:
If they meet all four of the requirements above, you must send a 1099 to both them and the IRS. If they fail to meet even one of the requirements, no 1099 is necessary. If you do need to issue a 1099, it must be filed and sent out no later than the last day in January.
Our vCFO services includes handling everything surrounding 1099s – creating, filing, and sending out. That way you can know they are being handled properly. If you are interested in our vCFO services, let’s connect! We provide online entrepreneurs freedom from the financial aspects of their business by providing unique accounting solutions and peace of mind.