1099?

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A sole proprietor performs a repair for a small Oregon business for $601.

1) They are required to file a 1099.

2) The 1099 must include the sole proprietor business address.

3) The 1099 must include the sole proprietor EIN.

Are each of these separate statements True or False?

[AliciaP1]

True.  Per the IRS:

If you pay independent contractors, you may have to file Form 1099-NEC, Nonemployee Compensation, to report payments for services performed for your trade or business. File Form 1099-NEC for each person in the course of your business to whom you have paid the following during the year at least $600.

1. Services performed by someone who is not your employee; (including parts and materials) (box 1); or
2. Payments to an attorney (box 1).

You must also file Form 1099-NEC for each person from whom you have withheld any federal income tax under the backup withholding rules regardless of the amount of the payment.

If the following four conditions are met, you must generally report a payment as NEC.

• You made the payment to someone who is not your employee.
• You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations).
• You made the payment to an individual, estate, or, in some cases, a corporation.
• You made payments to the payee of at least $600 during the year.

For more information regarding reporting non-employee compensation and exception to reporting refer to the Instructions for Forms 1099-MISC and 1099-NEC

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1) What happens if the small business paying the $601 does not file that form? Many small businesses pay over $600 and do not file that form.

What is the definition of an independent contractor? If an independent non-employee services a small business for $601 without a contract, then they would not have to file a form?

2) Does the small business have to file the serviceman's business address?

3) Does the small business have to file the serviceman's EIN?

[AliciaP1]

If a business fails to issue a form by the 1099-NEC or 1099-MISC deadline, the penalty varies from $50 to $280 per form in 2022, depending on how long past the deadline the business issues the form. There are maximum fines per year for small businesses. If a business intentionally disregards the requirement to provide a correct payee statement, it's subject to a minimum penalty of $570 per form in 2022 or 10% of the income reported on the form, with no maximum.

An Independent Contractor is defined by the IRS:

People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.  You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.

A contract is not necessary to require a 1099.  It is merely the type of relationship between the payer and the recipient.

The business (payer) should request Form W9 prior to making any payments.  This form is completed by the recipient and notes the name of the recipient (payee), address, type of business entity, and SSN or EIN of the payee.  This information is then used to complete the 1099.

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