Does a Business Owner Get a 1099 Form?
Understand when and why 1099 forms are central to your business's tax reporting. Navigate your obligations for income and payments.
Form 1099 is an information return used by the Internal Revenue Service (IRS) to report various types of non-employment income paid to individuals or unincorporated entities. This form plays a significant role in tax compliance for business owners, as it helps the IRS track income that is not reported on a W-2 form. Business owners engage with 1099s in two primary ways: they may receive them as a record of income they have earned, and they are often required to issue them to others for specific payments made in the course of their business operations.
When a Business Owner Receives Form 1099
Business owners frequently receive various types of Form 1099, which serve as official records of income earned from sources other than traditional employment wages. The specific 1099 form received depends on the nature of the income.
One common form is Form 1099-NEC, or Nonemployee Compensation, which reports payments of $600 or more received for services performed as an independent contractor, freelancer, or other self-employed individual. This includes fees, commissions, prizes, and awards for services. Business owners operating as sole proprietors, single-member LLCs, or partnerships often receive this form from clients who paid them for services.
Another significant form is Form 1099-MISC, or Miscellaneous Information, which reports various income types of $600 or more, such as rents, prizes and awards, and other income payments. For instance, a business owner who rents out commercial property might receive a 1099-MISC from their tenant. Royalty payments of $10 or more are also reported on this form.
Form 1099-K, Payment Card and Third Party Network Transactions, reports payments processed through third-party payment networks and payment card transactions. This form is particularly relevant for businesses that accept credit card payments or use online payment platforms. For tax year 2023, the threshold for receiving a 1099-K was over $20,000 in gross payments and more than 200 transactions, though the IRS has since announced a phase-in, with a threshold of over $5,000 for 2024, and over $2,500 for 2025.
Business owners may also receive Form 1099-INT for interest income of $10 or more, often from bank accounts or certain debt instruments, and Form 1099-DIV for dividends and distributions of $10 or more from stocks or mutual funds. These forms help business owners accurately report their gross income on their tax return, such as on Schedule C (Profit or Loss from Business) for sole proprietors, or Schedule E (Supplemental Income and Loss) for rental income.
When a Business Owner Must Issue Form 1099
Business owners often have an obligation to issue Form 1099 to certain individuals or entities they pay in the course of their trade or business. Generally, a business must issue a 1099 if it pays $600 or more in a calendar year to an individual, partnership, or limited liability company (LLC) taxed as a sole proprietorship or partnership, for services performed.
Specific types of payments commonly trigger this reporting requirement. Payments to independent contractors for services, such as consultants, designers, or freelance writers, are reported on Form 1099-NEC. Additionally, rent payments made to landlords, royalty payments, and medical or healthcare payments are reported on Form 1099-MISC.
Payments made to attorneys are a notable exception. Businesses must issue a 1099 for payments of $600 or more to attorneys, regardless of whether the attorney operates as an individual, partnership, or corporation. Before making payments that might trigger a 1099, obtain a completed Form W-9, Request for Taxpayer Identification Number and Certification, from the payee.
The W-9 form provides the necessary taxpayer identification number (TIN), name, and address of the payee, along with their entity type, which is crucial for accurate 1099 reporting. Common exceptions to issuing 1099s include payments made to most corporations (with the attorney exception), or payments for merchandise.
Preparing and Submitting Form 1099
After gathering all necessary information, such as completed W-9 forms and payment details, the next step for a business owner is to prepare and submit the required 1099 forms. Forms can be prepared using accounting software, IRS fillable forms, or through the services of third-party providers.
The deadlines for issuing and filing 1099 forms vary by form type. Generally, copies of Form 1099-NEC, reporting nonemployee compensation, must be furnished to recipients by January 31st. This same January 31st deadline also applies to filing Form 1099-NEC with the IRS, whether by paper or electronically.
For Form 1099-MISC, copies must be provided to recipients by January 31st, though there are exceptions for certain payments like those in boxes 8 or 10, which have a February 18th recipient deadline. The IRS filing deadline for paper Form 1099-MISC is February 28th, while electronic filing allows until March 31st. If any deadline falls on a weekend or holiday, it shifts to the next business day.
Businesses have two primary methods for submitting forms to the IRS. Paper forms must be accompanied by Form 1096, Annual Summary and Transmittal of U.S. Information Returns, which acts as a cover sheet summarizing the transmitted 1099s. Electronic filing, or e-file, is required for businesses filing 10 or more information returns for tax year 2023 and beyond. Electronic filing can be done through the IRS FIRE (Filing Information Returns Electronically) System or via authorized e-file providers. Maintaining accurate records of all issued 1099s and supporting documentation is important for compliance and future reference.