Everything You Need to Know About Filing 2020 1099s

Foresight Business Solutions (Foresight) provides 1099 preparation, evaluation & additional vendor information services.  Now is the time to plan for your 2020 information return filing & compliance requirements.

Not sure if your company needs to file Form 1099?  Here are some common examples of types of payments that require Form 1099 Information Return reporting:

• Professional Fees (Attorney, Accountant) (threshold > $600)
• Rental Payments (threshold > $600)
• Payments to Subcontractors (threshold > $600)
• Interest Payments (threshold > $10)
• Commissions (for non-employees) (threshold > $600)

Why Filing Your 1096 / 1099 Information Return Is Important:

The IRS wants to ensure individual and business taxpayers are reporting all their income, therefore the IRS requires information return reporting, such as the Form 1099.  Businesses complete the 1099 forms for payments they made during the year and provide copies to the vendors, the IRS, and certain states.  The IRS then uses the 1099 form to match up and verify information that the recipient reports on their income tax returns. 

For all business returns (including Form 1040 Schedule C), the IRS asks taxpayers for an affirmative declaration of whether the business is required to issue 1099s, and if the business did in fact file the 1099s for the current tax year. These two questions on the Tax Returns were added beginning with the 2011 tax year.  Since the taxpayer and the tax preparer are both signing off on the return, under penalty of perjury, an incorrect answer to this question could pose issues for both you and your tax preparer.  The IRS may assess penalties on non-compliant taxpayers for ‘Failure to File Correct Information Returns by the Due Date.

New Updates for 2020 calendar year:

The 1099-NEC (non-employee compensation) will replace most of the 1099-MISC forms that are filed, but not all of them.  The IRS says that trades or businesses need to issue Form 1099-NEC if the following conditions are met:

• You make a payment to someone who is not your employee
• You made a payment for services during trade or business
• You made the payment to an individual, partnership, estate or, in limited cases, a corporation
• You made payments to the payee of at least $600 during the year

Form 1099-MISC will still be used for other things, like reporting rents paid, royalties paid, nonqualified deferred comp and Section 409A deferrals. 

Important 1099 Information (Act 43)

Starting January 1, 2018, Pennsylvania business owners who issue IRS Form 1099-MISC/1099-NEC for payments to non-resident service providers or landlords (“Payee”), may be required by Pennsylvania law (Act 43 of 2017) to withhold 3.07% income tax on these payments.

To determine which payee(s) requires you to withhold Pennsylvania Income Tax from their payments, see below:

• Payee must be a non-resident of Pennsylvania and subject to Pennsylvania Income Tax (i.e., they worked in Pennsylvania). It is recommended a form PA REV-1832 (“1099-MISC Withholding Exemption Certificate”) be provided to each payee. The completed and signed PA REV-1832 should be retained for your records indefinitely.
• You made total payments to the payee of $5,000 or more for the tax year. Payments include but are not limited to “non-employee compensation”, rents, royalties, bonus payments, damage rents and other payments made pursuant to a lease. However, if you are unsure that total payments will be $5,000 or more for the tax year. It is recommended you withhold and remit income tax from each payment made.

The due date for filing is January 31 in the year following the applicable tax year.

What You Need to Do:

If you own a business or are self-employed, review all your 2020 vendor payments to determine if a 1099 will be required to be issued for the 2020 tax year.  Get all these vendors to complete a W-9 form and keep for your records.  Many companies will not pay any new vendors without first obtaining a W-9 form.

Each business or self-employed individual is required to file a separate Form 1099 Information Return to each respective payee by January 31, 2021.  In addition, Form 1096 Information Return that reports all payments made to each 1099 payee (in total and by payee) must be electronically filed by January 31, 2021 (for NEC) and March 31, 2021 (for MISC/INT).  If sent late or if not sent at all the IRS may assess penalties which can be quite costly.

How Foresight Can Help:

Foresight can guide you through your filing requirements and assist in reviewing your vendor information.  Foresight can file your required Form 1096 and 1099s for the 2020 tax year. 

If you need information on how to implement proper vendor reporting procedures, let us know and we can send you some free resources.

Please contact us for more information and how to get started.  See ‘Pricing’ below.  You can contact your accountant directly or for general questions you can call us at 484-368-3183, or by email at FBStax@foresightcpa.com.

If you would like us to file your 1099’s, please contact us to do so by year end. REMEMBER… NON-COMPLIANCE IS EXPENSIVE. 

This letter serves as communication that it is your obligation to ensure the ‘Miscellaneous Information Returns’ & ‘Interest Income Returns’, ’Non-Employee Compensation’ forms 1096 and 1099 for the calendar year 2020 are filed.  If you do not engage Foresight to review your vendor information and prepare your 2020 ‘Miscellaneous Information Returns’, ‘Interest Income Returns’ and ’Non-Employee Compensation Returns’ you acknowledge if there are any future repercussions relating to the non-filing of theses returns, you will not imply blame or seek damages from Foresight Business Solutions, LLC for any fines or penalties that you may be obligated to pay.

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