1099 State Reporting Requirements for Your Business

Form 1099 is an information return used to report certain types of payments. While businesses must file these with the Internal Revenue Service (IRS), many states also require businesses to report these payments to a state tax agency. State obligations are not uniform, and the rules for which payments to report, which forms to use, and filing deadlines vary. Adhering to these distinct state requirements is necessary for any business that makes reportable payments.

Determining Your State Filing Obligations

A business’s requirement to file 1099s with a state is triggered by nexus, a connection between the business and the state. This connection is most commonly established by making a payment to a resident of that state, regardless of where the business is located. For instance, a company hiring a remote contractor may have a filing obligation in the contractor’s home state. Having a physical presence, employees, or deriving income from a state can also create nexus.

The forms a business must file with a state often mirror federal requirements. The most common are Form 1099-NEC for nonemployee compensation and Form 1099-MISC for miscellaneous payments like rent or prizes. Other forms, such as the 1099-K or 1099-R, may also have state-level reporting mandates. A business must verify which forms each state requires.

Filing thresholds, the minimum payment amount that triggers a reporting requirement, can also differ between the federal government and the states. The federal threshold for Form 1099-NEC is $600, but some states require reporting for all payments, regardless of the amount. This means a $500 payment to a contractor, while not requiring a federal 1099-NEC, might still need to be reported at the state level. Businesses must maintain accurate records of all payments to ensure compliance.

Some states without an income tax do not have a 1099 filing requirement. Other states with an income tax may not require direct 1099 submissions, instead relying on information-sharing agreements with the IRS. Because most states have their own distinct filing requirements, businesses must consult each state’s department of revenue to confirm their obligations.

Information and Forms Needed for State Filing

To fulfill state filing obligations, a business must gather information for both the payer (the business) and the payee (the payment recipient). For the payee, this includes their full name, address, and a Taxpayer Identification Number (TIN), which is either a Social Security Number (SSN) or an Employer Identification Number (EIN). The payer’s information includes the business’s name, address, and EIN.

Many states require a separate reconciliation or transmittal form to be filed with the 1099s. This document serves as a summary cover sheet, reconciling the total payments reported with the total state tax withheld and remitted throughout the year. On this form, businesses provide their state withholding account number, the total number of 1099s submitted, and the total payments reported.

The current versions of state-specific transmittal forms and their instructions can be found on the official website of the state’s department of revenue. Businesses should locate these documents on the state’s website to ensure they are using the correct and most recent versions, as forms can be updated annually.

Methods for Submitting 1099s to States

The Combined Federal/State Filing (CF/SF) Program allows a business to file certain 1099s, like the 1099-MISC and 1099-NEC, with the IRS, which then forwards the data to participating states. However, this program does not fulfill all state obligations. Many participating states still require businesses to file Form 1099-NEC and other forms directly with the state agency. Therefore, businesses must verify each state’s rules and not rely solely on the CF/SF program.

For states not participating in the CF/SF program, or for forms that must be filed directly, businesses must use direct-to-state filing. This involves submitting 1099s and transmittal forms to the state’s tax authority. The most common method is through an online portal on the state’s department of revenue website, which may require creating an account and uploading a file formatted to state specifications. While some states permit paper filing, electronic filing is the standard.

State-Specific Withholding Requirements

Some states require businesses to withhold state income tax from payments to nonemployees, separate from the reporting obligation. This requirement can apply even if the paying business has no physical location in the state where the contractor performs services. This duty involves the collection and remittance of taxes.

State non-employee withholding rules mandate that a business making payments for services performed within that state must withhold a percentage for income taxes. The withholding is calculated as a flat percentage of the total payment. This ensures the state collects income tax from non-residents earning income within its borders.

The amount of state income tax withheld must be reported in a specific box on the Form 1099-NEC or 1099-MISC. This provides the payee with a record of the tax paid on their behalf, which they can claim when filing their state income tax return. The business is responsible for accurately calculating and reporting these funds.

Remitting withheld taxes to the state is a separate process from filing annual 1099s. Businesses are required to register for a state withholding account and make periodic deposits of the withheld funds, often monthly or quarterly.

State Filing Deadlines and Penalties

Many states align their filing deadlines with the IRS, but some have unique dates. The federal deadline for Form 1099-NEC is January 31. For most other 1099 forms, the federal due dates are February 28 for paper filing and March 31 for electronic filing. Businesses must verify the specific deadline for each state where a filing is required, as they may be earlier or later than federal dates.

Failing to file on time or at all can result in state-level penalties, which are separate from any penalties assessed by the IRS. State penalty structures vary but often include a per-form penalty for each late or incorrect 1099. These penalties can range from $50 to over $250 per form and may increase the longer the failure continues.

States can also impose percentage-based penalties for failing to comply with withholding requirements. A business that does not withhold required state income tax may be penalized a percentage of the tax that should have been withheld. These penalties are often coupled with interest charges that accrue on the unpaid tax liability.

To avoid penalties, businesses should maintain a calendar of all federal and state filing deadlines and begin the preparation process well in advance. For states with withholding requirements, proper registration and timely remittance of withheld funds are necessary.