Do You Have to File 1099s With the State?
Understand state 1099 filing requirements, including thresholds, jurisdictional differences, withholding rules, penalties, and record-keeping best practices.
Businesses and individuals who pay independent contractors or other non-employees often need to file IRS Form 1099. While federal filing requirements are well known, state-level rules are less clear. Some states require separate filings, while others participate in the Combined Federal/State Filing (CF/SF) program, which simplifies reporting.
Understanding state filing obligations is crucial to avoid penalties and maintain compliance.
Checking State Filing Thresholds
Each state sets its own rules for 1099 filings, often based on income thresholds. Some require submission if payments exceed a certain amount, while others mandate filing only when state tax withholding applies. For example, California requires 1099 filings for payments over $600, aligning with federal rules, whereas Wisconsin only requires reporting if state tax was withheld.
Certain states impose additional requirements for different 1099 types. While most follow federal guidelines for 1099-NEC, others have specific rules for 1099-MISC or 1099-INT. New York, for instance, requires 1099-MISC filings if the payer conducts business in the state, even if the recipient lives elsewhere.
Electronic filing thresholds also play a role. Many states require e-filing when the number of forms exceeds a set limit, such as 10 in South Carolina or 25 in Illinois. Submitting paper forms when e-filing is required can result in penalties.
Differences Among Jurisdictions
State 1099 filing requirements vary widely. Some states require direct submission to tax agencies, while others rely on federal reporting. Pennsylvania and Massachusetts mandate direct filing with the state, even if forms are submitted to the IRS. Meanwhile, states like Florida and Texas, which lack a personal income tax, generally do not require 1099 filings.
Participation in the CF/SF program allows the IRS to transmit 1099 data to state tax authorities, simplifying compliance. However, this does not eliminate all state-specific requirements. North Carolina, for example, is part of CF/SF but still requires separate reporting for certain 1099s, particularly when state tax withholding is involved.
Filing deadlines also vary. While the federal deadline for 1099-NEC is January 31, some states have different due dates. Virginia follows the federal deadline, while Minnesota extends it to February 28. Businesses operating in multiple states must track these variations to ensure timely submission.
Withholding and Payment Factors
State tax withholding on 1099-reported payments can add filing requirements. Some states require withholding from nonresident contractors or when recipients lack a valid taxpayer identification number (TIN). California mandates 7% withholding on payments over $1,500 annually to nonresident independent contractors. South Carolina requires 2% withholding for nonresident individuals and 7% for nonresident entities unless an exemption applies.
Remitting withheld taxes and reporting them varies by state. Many require businesses to register for a withholding account and submit payments monthly or quarterly. New York, for example, requires withholding agents to file quarterly returns with Form NYS-1 and an annual reconciliation on Form NYS-45. Late deposits can incur penalties and interest.
Annual reconciliation forms often accompany 1099 filings in states with withholding requirements. These summarize total payments, withheld amounts, and prior remittances. In Georgia, businesses must submit Form G-1003 with copies of 1099-NEC forms if state tax was withheld. Some states, such as Oregon, mandate electronic filing for reconciliation reports when withholding exceeds a certain threshold.
Potential Penalties for Non-Filing
Failing to file required 1099 forms can result in monetary penalties, which vary based on the length of noncompliance and whether the failure was intentional. Many states impose fines per form, increasing with prolonged delinquency. New Jersey assesses $50 per unfiled 1099, while Minnesota starts at $5 per form if filed within 30 days but rises to $100 if delayed beyond six months.
Some states impose penalties based on a percentage of unpaid tax liability when 1099s are not filed as required. In Maryland, failure to file an information return linked to withheld taxes can result in a penalty of up to 25% of the unpaid amount. Repeated noncompliance may lead to audits or increased scrutiny.
Record Retention Considerations
Maintaining accurate 1099 records is essential. States often have specific retention requirements dictating how long businesses must keep copies of filed forms, withholding records, and related documentation. While the IRS generally requires businesses to retain tax records for at least three years, many states extend this period to five or more. California mandates a four-year retention period, while New York requires six years if withholding was involved.
Proper documentation includes copies of submitted 1099 forms, proof of filing such as electronic confirmations or certified mail receipts, and records of payments to contractors, including invoices and bank statements. Well-organized records help resolve discrepancies in case of a state audit. Some states, like Illinois, also require businesses to maintain records of any exemptions claimed.