When Are Subscriptions 1099 Reportable?
Understand your 1099 reporting duties for subscriptions. Learn how vendor type, payment method, and the nature of the expense determine your obligations.
Determining whether business expenses require 1099 reporting is a common challenge, especially with modern expenditures like digital subscriptions. Navigating these requirements is a matter of understanding the fundamental rules and how they apply to different types of payments.
The General Rules for 1099 Reporting
The foundation of 1099 reporting for businesses is Form 1099-NEC, for Nonemployee Compensation. The Internal Revenue Service (IRS) requires you to file a Form 1099-NEC if you have paid a non-employee $600 or more during the calendar year for services. This threshold is based on the total paid to each individual or entity, not the total paid to all contractors.
A primary distinction in reporting is between payments for services and payments for goods. Payments for services performed for your business are reportable, while payments for tangible products or merchandise are not.
The type of entity you pay is also a factor. Reporting is required for payments made to individuals, sole proprietorships, partnerships, and certain limited liability companies (LLCs). These payees are considered non-employees, and the compensation they receive for their services must be reported if it meets the $600 threshold.
Applying the Rules to Subscriptions
When applying the reporting rules to subscriptions, the central question is whether the payment is for a service or a product. For most digital subscriptions, the IRS considers the payment to be for a product. This classification means that these payments are not reportable on a Form 1099-NEC.
Payments for Software as a Service (SaaS) platforms, such as accounting software or cloud storage, are viewed as the purchase of a software license, which is a product. As such, these subscription fees do not require 1099 reporting. Subscriptions to digital publications, like trade journals or online magazines, are also considered product purchases and are not reportable.
Professional membership dues can be more nuanced. If the membership primarily provides access to publications or resources, it is treated like a product. However, if the dues are for an organization that provides significant services back to its members, the payment could be considered reportable. An exception exists if you hire an independent contractor to develop or customize software; these payments are for a service and would be reportable if they meet the $600 threshold.
Key Reporting Exemptions
Even if a payment meets the general requirements for reporting, several exemptions can override the need to file a Form 1099. These exemptions relate to the recipient’s business structure and the method of payment.
One of the most significant exemptions is for payments made to corporations. You do not need to issue a Form 1099-NEC to C or S corporations, even if the payment is for services that would otherwise be reportable. A notable exception is for payments for legal services; payments of $600 or more to a law firm, even if incorporated, must be reported.
Another exemption involves the payment method. If you pay a vendor using a credit card, debit card, or a third-party payment network like PayPal or Stripe, you are not required to issue a 1099-NEC. The responsibility for reporting these transactions shifts to the payment settlement entity, which reports the payments on Form 1099-K.
Required Documentation The Form W-9
If you determine a payment is reportable, you must gather the necessary information from the vendor using IRS Form W-9, Request for Taxpayer Identification Number and Certification. The form is used to collect the vendor’s legal name, address, business classification, and Taxpayer Identification Number (TIN), which is either a Social Security Number (SSN) or an Employer Identification Number (EIN). You do not file the W-9 with the IRS but keep it for your records to accurately complete Form 1099-NEC. It is a best practice to request a completed W-9 from every vendor before issuing their first payment.
How to File a Required 1099
The IRS provides a free online portal called the Information Returns Intake System (IRIS) for electronic filing. This system allows you to fill in and file Forms 1099-NEC directly with the IRS. Many businesses also use third-party accounting or payroll software, which can handle the preparation and filing for a fee.
Businesses that file 10 or more information returns in aggregate during a calendar year must file them electronically. This rule requires filers to add up all types of information returns, such as Forms W-2 and 1099, to determine if they meet the threshold. For those filing fewer than 10 forms, paper filing is an option, but you must also submit a summary Form 1096 to transmit the paper forms to the IRS.
There are two key deadlines to remember. A copy of the Form 1099-NEC must be furnished to the recipient by January 31 of the year following the payment. The same date, January 31, is also the deadline to file the form with the IRS, regardless of whether you are filing electronically or on paper.