How to get your 1099 game plan in shape and avoid a last-minute panic.
“Knowledge is knowing that a tomato is a fruit. Wisdom is knowing not to put it in a fruit salad.” — Rugby player Brian O’Discroll
Most finance team members know the basics of 1099 requirements, and the IRS has issued clear guidelines. But it takes more than knowledge of the regulations to handle 1099 reporting in a way that flows smoothly without causing disruption and a last-minute scramble every January.
Making a game plan before it’s time to tackle 1099s makes the whole process much easier.
Instead of thinking of 1099 filing obligations as a nuisance to deal with at the last minute each year, build it into your expense management system all year round. In doing so, you’ll have everything you need when it’s time to send out the forms.
Step 1: Understand your 1099 obligations.
If you paid an independent contractor or self-employed individual more than $600 in 2021, you must complete an IRS Form 1099 and send Copy A of the form to the IRS. Copy B must be sent to the vendor. There is one exception to the $600 cut off, which is that any royalties paid over $10 must be reported.
In 2020, the IRS introduced Form 1099-NEC (which stands for non-employee compensation). The majority of 1099s that businesses send out will be Form 1099-NEC. The older form, 1099-MISC, is now used for miscellaneous expenses, such as rent, royalties, or medical and health care payments.
Deadlines are a critical part of the 1099 requirements, and you will be penalized if you miss one. Here are some key dates for reporting of 2022 payments:
January 31, 2022: 1099-NEC due to IRS and vendors. 1099-MISC due to vendors.
March 31, 2022: Deadline for the 1099-MISC to be filed electronically with the IRS. If you file by paper, it's February 28, 2022.
It’s always best to consult the IRS instructions for any form and to seek advice from a tax attorney when needed, but here are some general instances when you are required to issue a 1099:
- Services over $600 performed by an LLC, LLP, or independent consultant and paid for by check, ACH, or debit card: Issue a 1099-NEC.
- Rent over $600: Issue a 1099-MISC.
- Royalties over $10: Issue a 1099-MISC.
- Medical and health payments over $600: Issue a 1099-MISC.
1099s do not need to be issued to C-Corps, with the exception of medical and health payments, gross proceeds paid to attorneys, or substitute payments in lieu of dividends or tax exempt, all of which require a 1099-MISC.
1099s are also not required for things such as business travel expenses, employee expense reimbursement, office supplies, freight, storage, or similar items, or rent if the payments are made to real estate agents or property managers.
Step 2: Develop a foundation for your game plan.
1099s are easier when the end goal is embedded in the purchasing process. A spend management platform that addresses the entire payment process, from initial request to GL sync, will take 1099 requirements into account every time a bill is paid. Here’s how it works in Airbase.
- The minute a vendor is added to the system, simply indicate if the vendor fits the criteria for receiving a 1099. If it does, Airbase collects their tax information by having the vendor fill out and submit a W-9 form. The W-9 has all of the relevant information you will need for the 1099: name, address, contact information, email address (preferably for the accounting department), and EIN/SSN.
- In a spend management platform, a vendor’s contracts, invoices, W-9s, and other documents are attached to the same record, so you have everything you need to manage payments for that vendor in one place.
- Having the W-9 on file helps you meet your IRS reporting obligations, so you must track which vendors have submitted one. Airbase’s reporting functionality will produce a real-time report showing those vendors.
Step 3: Enforce vendor compliance.
You can choose to make W-9 submission a requirement for getting paid. In other words, if a vendor hasn’t submitted the form, you won’t pay them. We recommend enabling this feature so you don’t have to chase down the information when it’s 1099 time. As Dan Shinstrom, Director at KongBasileConsulting, joked during Airbase’s Preparing for year-end: 1099s can be fun! webinar, “if you owe a vendor money, they will give their W-9 to you much faster than they will in January or February.”
Step 4: Strategically shift the reporting burden when possible.
When a vendor is paid by credit card, PayPal, or other types of payment processors, the 1099 obligation moves to the payment processing company. This is one reason why astute finance teams are moving bill payments to their card programs.
With a payment-agnostic spend management platform, such as Airbase, you can make bill payments through your card program and shift the burden of 1099 reporting to the card company.
It’s an easy way to avoid 1099s (as fun as they are) without any extra work on your part. As an added bonus, you can earn cash back on card spending. Think of it as monetizing accounts payable.
The wise approach to 1099s is to embed the process into a complete bill payment system so that, when it’s time to report to the IRS and to the vendor, all of the information will be at your fingertips — vendor name, tax ID, address, amount owed. To learn more about how a spend management system can help, talk to Airbase. Because knowing you have to do 1099s and having the wisdom to do them without making them into a fruit salad, well... that’s how great companies are built.
Note: This post is based on publicly available information and does not constitute legal or tax advice. Please consult a tax professional with any questions specific to your situation.
Airbase offers a one platform solution to manage all non-payroll spend. It provides oversight and control over spending with real-time reporting and automatic syncing directly to your general ledger. Control all payments – physical cards, virtual cards, ACH, and checks – from one place. Close faster. Empower employees. Control spend.
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