What is a 1099 Form and Why is it Important?
With the 2021 tax season behind us, it’s time to look toward year-end and prepare for next year’s filings. One area of importance that continues to evolve is the filing of federal forms 1099. The IRS has placed two questions on federal business returns that require yes/no answers - did you make any payments that would require filing forms 1099, and did you (or will you) file them. There has been increased emphasis on filing requirements and how to properly report payments to vendors.
Form 1099-NEC is the most common 1099 form filed to report non-employee compensation. Form W-2 is used to report wages and salaries for employees. Federal and sometimes state taxes are withheld and reported on forms W-2 along with employee earnings. Forms 1099-NEC merely report amounts paid to vendors, contractors, and other non-employees. Tax withholding is not reported on Form 1099-NEC. Improperly classifying individuals as a contractor instead of an employee could be an audit target for the IRS.
If you are paid as a non-employee versus an employee, you should always report your earnings, even if a 1099 form is not received. The employer could be audited and/or the 1099’s could be filed on a later date. If you have underreported your income, you may be next in line for IRS review.
We believe it is important for our business clients to start now organizing their records to ensure all applicable 1099 forms are issued by January 31, 2023. We can assist you with identifying qualified payees and preparing forms for timely filing.
If you are a business owner and feel uncertain of these rules for filing and reporting possible 1099’s, please contact us for a consult.