When To Issue 1099Misc

You must file Form 1099-MISC for each person  in the course of your business to whom you have paid during the year (Personal payments arenot report able):

  • 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; or
    • any fishing boat proceeds,

In addition, use this form 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.

1099 NOT Required When: 
  • Generally, payments to a corporation (including a limited liability company (LLC) that is treated as a C or S corporation).
    • with exceptions:
      • payments to Attorney, ect.
  • Payments for merchandise, telegrams, telephone, freight, storage, and similar items.
  • Payments of rent to real estate agents or property managers. However, the real estate agent or property manager must use Form 1099-MISC to report the rent paid over to the property owner.
  • Payments made with a credit card or payment card and certain other types of payments, including third-party network transactions, must be reported on Form 1099-K by the payment settlement entity under section 6050W and are not subject to reporting on Form 1099-MISC.
    • with exceptions:
      • payments to Attorney, ect.
  • See instructions for other exceptions.
File Electronically
  • If you are required to file 250 or more information returns during the year, you must file electronically.

Please note that penalties change from year to year.

  • Late Forms and/or Uncorrected Errors
      • If you correctly file within 30 days of deadline: $50 per form ($547,000 max)
      • If you correctly after 30 days and by August 1: $100 per form ($1,641,000 max)
      • If you correctly file after August 1: $270 per form ($3,282,500 max)

      The IRS reduces max fines for each tier by $186,000, $532,000 and $1,064,000, respectively for filers that are small businesses with less than $5 million in gross receipts for the past three years.

  • Missing Forms Due to Intentional Disregard
    • The penalty is the greater of $530 per form or 10% of the amount required to be reported on the return. If a filer neglects to send forms altogether (to either the IRS or the contractor) when the filer knew it should have (what the IRS classifies as “Intentional Disregard”). This penalty has no maximum — yikes!
  • Not Filing Over 250 Forms Electronically
    • $250 per form
  • Missing or Incorrect TINs
    • If required 1099-K or 1099-MISC forms are missing TINs (SSN or EIN) or have incorrect TINs, then the IRS can impose fines $270 per form. That fine can be reduced to $50 if a correction is filed within 30 days of the deadline,.

      The penalty may be waived by showing the failure(s) was due to reasonable cause and not to willful neglect.

Exceptions to the Penalty

Concerned about facing a penalty? Don’t give up hope: you may fall into an exception if you faced mitigating circumstances and act fast to solve the issue. Here’s the IRS list of acceptable exceptions:

1. The penalty will not apply to any failure that you can show was due to reasonable cause and not to willful neglect. In general, you must be able to show that your failure was due to an event beyond your control or due to significant mitigating factors. You must also be able to show that you acted in a responsible manner and took steps to avoid the failure.

2. An inconsequential error or omission is not considered a failure to include correct information. An inconsequential error or omission does not prevent or hinder the IRS from processing the return, from correlating the information required to be shown on the return with the information shown on the payee’s tax return, or from otherwise putting the return to its intended use. Errors and omissions that are never inconsequential are those related to (a) a TIN, (b) a payee’s surname, and (c) any money amount.

3. De minimis rule for corrections. Even though you cannot show reasonable cause, the penalty for failure to file correct information returns will not apply to a certain number of returns if you:

a. Filed those information returns timely,

b. Either failed to include all the information required on a return or included incorrect information, and

c. Filed corrections by August 1.

If you meet all the conditions in (a), (b), and (c) above, the penalty for filing incorrect returns will not apply to the greater of 10 information returns or 1/2 of 1% of the total number of information returns you are required to file for the calendar year.

  • What constitutes reasonable cause?

According to IRS guidance:

Filers must establish that they acted in a responsible manner both before and after the failure occurred, and that:

  • There were significant mitigating factors (for example, an established history of filing information returns with correct TINs)
  • The failure was due to events beyond the filer’s control (for example, a payee did not provide a correct name/TIN in response to a request for the corrected information). Acting in a responsible manner includes making an initial solicitation (request) for the payee’s name and TIN and, if required, an annual solicitation. Upon receipt of this information, it must be used on any future information returns filed.

You may want to talk to your tax advisor to understand the applicable penalties.


2018 General Instructions for Certain Informational Returns

2018 FORM 1099Misc Instructions 

2018 FORM 1099Misc

The materials posted in this article are for informational purposes only and should not be regarded as accounting or tax advice provided by YR Tax Compliance LLC. These materials have been prepared by professionals, however they should not replace professional services, and the user should seek advice before acting on any information presented. Every situation is uniquely different, and could make a world of difference on implementation of specific regulations.  YR TAX Compliance LLC assumes no obligation to provide notification of changes of tax laws, regulations or other factors that could affect the information posted.