As if we didn’t have enough to worry about in small business, Congress has increased the penalties for businesses who don’t comply with the 1099 filing rules with the Trade Preferences Extension Act (PL 114-27). In the past, failing to issue a 1099 form to your independent contractors could cost you $50 per form. Now, the penalty could be as high as $1,000 for each missing form. Ouch!
The penalty for a single incorrect 1099 form has increased by 150%, from $100 to $250. That’s a per form penalty! The penalty for intentionally failing to file a form is even higher, increasing from $250 to $500. The tricky part is that these penalties apply to both the copy of the form that you should send to your independent contractor and the copy of the form filed with the IRS. So, by failing to report payments to one independent contractor, you are actually failing to file two forms and your penalty will be $1,000!
Another change with the 2016 filing year is the due date. While you always had to get your 1099s out to your independent contractors by January 31st, you now have to get the IRS their copy by January 31st, as well. If you don’t, more penalties could kick in. Late filing penalties range from $50 to $100 per form, depending on just how late you are.
To be in compliance, you will have to prepare a 1099 form for every unincorporated service provider to whom you paid $600 or more in a calendar year. This includes freelancers of all kinds, subcontractors, independent consultants and a whole host of service professionals such as attorneys, accountants and bookkeepers, computer consultants, janitorial services and even the lawncare guy! These forms need to be sent to the recipient and a copy filed with the IRS by January 31st of each year.
Wondering how the whole 1099 process works and if you should be doing things differently? Download my 1099 Success Cheat Sheet to be sure you’re ready for year-end! Sign up in the blue box at the bottom of the post or on the right-hand sidebar.
Do you have any questions I haven’t’ covered? Leave a comment below to let me know what you think!
Deb Howard Greenleaf, EA, CEO and Principal, of Greenleaf Accounting Services provides virtual accounting and bookkeeping services and specializes in financial management to consultants, coaches, solo professionals, and other small business owners across the US. Deb is an Enrolled Agent (EA)—an IRS-licensed tax professional—and specializes in small businesses and entrepreneurs filing Schedule C or as an LLC. As an Advanced Certified QuickBooks ProAdvisor, Deb spends her day in QuickBooks Online and specializes in providing QBO support.
Martha Passman says
I am a dealer in an antique dealer in several malls. I pay rent to the mall, they sell my merchandise for me and present me with a check at the end of the month of my sales, less a 10% commission to the mall and a 3% commission to cover charge card fees. They are acting as an agent to physically ring up my merchandise…
1. Do I have to supply the mall with a 1099-Misc if my annual commission deductions to them is over $600? What about the rent I have to pay them each month? It easily tops the $600 mark not including the commissions I have to pay them.
2. Do the malls have to supply me with a 1099-Misc for the checks they issue that pay me for my merchandise sales?
Thank you so much. It is all very confusing and the malls are all doing things differently. One mall said they didn’t have to hand out 1099’s unless they paid $20,000 or more to a dealer.
We are all confused!
Thanks! Marty P
Hi, Marty! Those are all great questions!
(1) Yes, you will have to report your payments to the mall. Report your rent payments to them in Box 1. If the commissions are $600 or more, report them in Box 7 of the same form.
(2) Since the mall is paying you for merchandise sales, then 1099 reporting is not required. 1099 reporting is only for service providers. Therefore, the mall should not be sending you a 1099-MISC form.
I hope that helps!
Martha Passman says
If my business is a Sole Proprietorship with profits each year under $400 do the 1099’s apply? Or if dealers run their booth business as a hobby business are they required to file 1099’s?
If you are running your business as a sole proprietorship and filing Schedule C to report your business activity, then you do need to prepare 1099 forms at year-end for payments to eligible independent contractors. Whether your business made a profit or not does not change that requirement.
If you are running your business as a hobby business, I would consult with a local tax preparer about options for reporting your activity as a Schedule C sole proprietorship. Reporting your business activity as a hobby is the least advantageous option out there! A short appointment with a tax professional should help you review your options. In the meantime, yes, you should report payments to eligible independent contractors.
Martha Passman says
Thank you so much for your words of wisdom! I appreciate your time!!!
If your mall is in cooperated you do not have to do a 1099. They are not an independent contractor.
Correct! 1099 forms are only sent to unincorporated service providers, not corporations.
Glad to help!