Who needs a 1099?

This topic was covered in one of my weekly newsletters. To get other timely tips, make sure you’re on the list: www.thejilljames.com/newsletter 

I wrote this huge “things to know” email in my newsletter a couple weeks ago, and we got LOTS of follow-up questions about 1099s. Since they must be emailed or postmarked by January 31, we’re speeding up to 1.21 Gigawatts to get your 1099s back in time.

Who might need a 1099?

1099-NECs are primarily for service providers organized as sole proprietors, partnerships, or LLCs that choose to be taxed that way.

In your business, that might include your accountant, bookkeeper, lawyer, photographer, or event planner, and of course your independent contractors.

If you’ve paid a service provider more than $600, you’ll need to evaluate whether they need a 1099-NEC.

Does it matter how I paid?

In short, yes. Did you pay from your bank account? This might include payment by check, ACH / Zelle / wire transfer, or debit card. If their payment shows up on your related bank statement, it counts. 

1099-NECS are not required:

  • If you paid by credit card
  • If you paid by PayPal, Venmo, or similar up to $19,999 (the IRS changed the 2022 requirement in December
  • If the company is a C-corp, S-corp, or LLC taxed as one of these – check their W-9

Oh crap, that’s me.

If you’ve just realized you owe some 1099s, never fear — you have almost two weeks to get this done. 

What to check: Look in your bank or financial statements for anyone you paid $600 or more in 2022.

What to collect: If you didn’t get an W-9 from your service provider, ask them to send one now, along with a preferred email address for delivery. If their W-9 says sole proprietor, partnership, or limited partnership, you’ll need to issue a 1099-NEC. If it says limited liability company (LLC), check the next line for how they’re taxed. If it says any of the things in the second sentence of this chunk, then you’ll need a 1099-NEC.

What to record: Review your bank statements or bookkeeping software to summarize what you actually paid to each service provider. 

Filing and sending: Most bookkeepers and payroll software packages provide this service. If you have a bookkeeper, many will file supplemental 1099s for a limited fee. Another service that’s been recommended to us is Track1099 by Avalara, costing $3 per filing, if you feel comfortable with DIY.

Getting ahead of 2023

I pay most of my contractors through Gusto because the system automatically files my hiring reports and rolls the payments into electronic 1099s each January. Even if you don’t have a W-2 payroll, you can now use Gusto for standalone contractor payments. Should you decide to go for it, please consider using our Gusto referral link.

Another best practice: If you need a 1099-NEC, fill out a W-9, date it 1/1/23, and scan it. Send it with your first invoice to any new customer. If you’re paying your service partners directly, ask for W-9s as you go. Here’s the blank W-9 to get you started. 

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