Every business owner needs to know the basics about 1099s. Make sure you’ve got the knowledge you need.
With the deadline for 1099s right around the corner, many business owners have questions. While the rules for filing 1099s are complex and have recently changed, there is some basic information that every business owner needs to know.
We’ve answered 5 of the most common questions we receive concerning 1099s.
What’s the difference between 1099s and W2s?
While you issue both 1099s and W2s to workers, they are not the same. A business will issue a W2 to a payroll employee, while 1099s are for non-payroll workers. 1099 workers can include independent contractors, freelancers, consultants, gig workers, or contractors.
Who needs a 1099?
Generally speaking, anyone that your business paid more than $600 in non-employment income needs a 1099.
It is important to note that as of 2020, there are two different 1099 forms: 1099-MISC and 1099-NEC.
- Form 1099-NEC is for reporting non-employee compensation (those 1099 workers we’ve already mentioned).
- Form 1099-MISC is for reporting miscellaneous income such as rent or payments to an attorney.
With any good rule, there are generally exceptions. And this rule is no exception. However, the exceptions can get complicated. So if you have questions about whether you need to issue a 1099, we recommend speaking with your accountant.
Does it matter how I paid?
The simple answer, yes. It makes a difference how you paid someone as to whether you will issue a 1099.
- If you paid via check, cash, or other direct payment, you are required to issue a 1099.
- If you paid via Zelle, Venmo, or CashApp, you are required to issue a 1099.
- If you paid by credit card, you are not required to issue a 1099.
- If you paid via PayPal, you are not required to issue a 1099 because PayPall will issue them one. (Note: If you paid via PayPal’s Friends and Family option, you are required to issue a 1099.)
- If you paid through a service like Fiverr or Upwork, you are not required to issue a 1099 because those services will issue one.
What’s the deadline for filing 1099s?
The deadline for filing 1099s is January 31. If this date happens to fall on a weekend, the deadline will be the next business day.
Be sure to mark the deadline on your calendar and set yourself a reminder. If you fail to file your 1099s by the deadline, you will face a penalty from the IRS.
What’s the penalty for not issuing a 1099?
The penalty for not issuing 1099s is $250 for each 1099 not issued.
There are also penalties for filing 1099s late. Penalties for filing late are $50 or $100 per 1099, depending on how late they are filed.
Knowing the rules and being proactive can help prevent you from having to worry about the penalties.
Still have questions? We’re here to help.
We know that all this 1099 talk can be overwhelming and make your head spin. We’re here to help. If you have questions regarding the new 1099 rules, reach out to us. Because your financial success is our goal.
