Do All Attorneys Get a 1099 for Legal Services?

Form 1099 serves as an information return for the Internal Revenue Service (IRS), tracking income paid to non-employees. Its purpose is to ensure individuals and businesses accurately report income received from sources other than wages. Payments for legal services are often subject to this reporting requirement, which is important for tax compliance for both the payer and the attorney.

Identifying When Form 1099 Reporting is Required

Businesses must issue a Form 1099 when making payments of $600 or more in a calendar year for services performed by a non-employee. This rule applies to payments made in the course of a trade or business, including those for legal services.

Payments to an attorney for legal services are typically reported on Form 1099-NEC, or Nonemployee Compensation. This form is used when a business pays an attorney $600 or more for direct legal services, such as drafting documents or representing the business. The $600 reporting threshold applies cumulatively, meaning multiple smaller payments totaling $600 or more will trigger the requirement.

If a business pays gross proceeds to an attorney in connection with legal services, such as a settlement payment where the attorney receives funds on behalf of a client, this is reported on Form 1099-MISC. These gross proceeds are entered in Box 10 of Form 1099-MISC. The nature of the payment dictates which form is used.

Common scenarios requiring a Form 1099 for legal services include a company hiring outside counsel or a real estate firm paying legal fees for property transactions. Payments to co-counsel or referral fees exceeding the $600 threshold also necessitate a Form 1099.

Understanding Reporting Exemptions

Not all payments to attorneys require a Form 1099. A common exemption from 1099-NEC reporting is for payments made to corporations. However, this general rule has a specific exception for legal services.

Payments to attorneys for legal services of $600 or more are reportable on Form 1099-NEC, even if the law firm is structured as a corporation, LLC, or LLP. This means the typical corporate exemption does not apply to legal fees. Similarly, for gross proceeds paid to an attorney, reported on Form 1099-MISC, the corporate exemption also does not apply. These amounts must be reported regardless of the attorney’s business structure.

Payments for personal legal services are also exempt from 1099 reporting. If an individual pays an attorney for non-business-related matters, such as estate planning or a divorce, the payer is not required to issue a Form 1099. This reporting obligation only arises when payments are made in the course of a trade or business.

Direct expense reimbursements are generally not reportable on a Form 1099 if they are accounted for separately from fees. However, if reimbursements are included in a lump sum payment for services, the entire amount might be subject to reporting. Payments to attorneys who are employees of a business are reported on Form W-2, not Form 1099.

Essential Information for Form 1099 Reporting

The payer, the business or individual issuing the Form 1099, must gather specific information from the attorney. Accurate data collection is important for meeting tax reporting obligations. Without correct information, the payer cannot properly complete the required forms.

The information needed from the attorney includes their full name or business name, complete address, and Taxpayer Identification Number (TIN). The TIN can be a Social Security Number (SSN) for an individual or sole proprietorship, or an Employer Identification Number (EIN) for a partnership, corporation, or other business entity. This number is unique to the taxpayer and used for IRS matching.

To collect this information, payers commonly use IRS Form W-9, Request for Taxpayer Identification Number and Certification. The payer provides this form to the attorney, who completes it with their legal name, business name (if applicable), tax classification, and TIN. The attorney also certifies the provided information is correct.

Both parties must ensure the accuracy of the information on Form W-9. Incorrect or missing information can lead to penalties for the payer and issues for the attorney when reporting income. Requesting a completed Form W-9 before making payments helps streamline the reporting process and avoid compliance problems.

Filing and Receiving Form 1099

The payer is responsible for filing the completed Form 1099 with the IRS and furnishing a copy to the attorney. This ensures the IRS receives necessary information and the attorney has a record of reported income. Adhering to deadlines is important to avoid penalties.

Key deadlines govern the Form 1099 process. Payers must furnish a copy of Form 1099-NEC to the attorney by January 31 of the year following payment. The same January 31 deadline applies for filing Form 1099-NEC with the IRS, whether on paper or electronically. For Form 1099-MISC, the deadline to furnish a copy to the recipient is also January 31. The filing deadline with the IRS for Form 1099-MISC is February 28 for paper filing, or March 31 for electronic filing.

Payers have several methods for filing Forms 1099 with the IRS. Paper filing involves submitting forms with Form 1096, Annual Summary and Transmittal of U.S. Information Returns. Electronic filing is also an option, often through the IRS FIRE system, and is generally required if a business files 10 or more information returns. Electronic filing offers advantages like faster processing and fewer errors.

Upon receiving a Form 1099, the attorney uses the information to accurately report their gross income on their tax return. The form documents income received, which the IRS uses to cross-reference reported amounts. Maintaining organized records of all Forms 1099 received is important for tax preparation and compliance.