When do I need to issue a 1099?
“If I paid someone to do work, do I need to issue them a 1099 or not?”
This is a great question and one that applies to practically all businesses.
This answer is based upon the hypothetical example you’ve given; be aware that in real life there may be some weird wrinkle that makes life interesting. Please consult a qualified professional if you have any questions.
I’m going to start a few steps before the issuing of Form 1099-MISC, and we’re going to talk about Form W-9 first.
IRS Form W-9 is the “Request for Taxpayer Identification Number and Certification”.
Basically, this form is the way a business requests the information from a vendor that will (potentially) later go on a future Form 1099-MISC.
That form is available here: https://www.irs.gov/pub/irs-pdf/fw9.pdf
We always encourage our clients to request a completed W-9 from most new vendors. This is because trying to get the information after the fact is very difficult, particularly if we haven’t thought about it until late January! 😬 Also, a vendor has much more incentive to provide a completed W-9 when they’re trying to get your business than once the work is done…
Now, when does a business need to issue a Form 1099-MISC? That’s a lot more complicated; here’s what the IRS instructions say:
“File Form 1099-MISC for each person to whom you have paid during the year:
- At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
- At least $600 in:
- Rents.
- Services performed by someone who is not your employee.
- Prizes and awards.
- Other income payments.
- Medical and health care payments.
- Crop insurance proceeds.
- Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
- Generally, the cash paid from a notional principal contract to an individual, partnership, or estate.
- Payments to an attorney.
- Any fishing boat proceeds.
In addition, use Form 1099-MISC to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.”
Anyway, there are exceptions to the requirements listed above but, generally, payments made to corporations are exempted and payments made to employees that can be reported on Form W-2 also exempted. You can see all of the instructions here: https://www.irs.gov/instructions/i1099msc
So, to answer your question, if the work costs less than $600 or if the party doing work for you is a corporation, you are not required to issue a Form 1099-MISC. If the contractor is a sole-proprietor (whether or not they have an LLC) and you paid them $600 or more, you would issue a Form 1099-MISC.
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