TO 1099 OR NOT TO 1099 - THAT IS THE QUESTION!

A long-time friend and client, the Executive Director of a membership organization for artists, recently asked me to whom does she have to issue Form 1099-MISC for tax year 2011.

First of all -

Section 9006 of the “Patient Protection and Affordable Care Act” had expanded the 1099 reporting requirements to include all payments from businesses for goods and services aggregating $600 or more in a calendar year to a single payee, including corporations (other than a payee that is a tax-exempt corporation), starting with payments in 2012. 

In April of 2011, the President signed into law the “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011”, which repealed the expanded Form 1099 information reporting requirements.

The expanded excessive 1099 reporting requirements NO LONGER EXIST.

Here are some excerpts from the IRS instructions for Form 1099-MISC on the reporting of “nonemployee compensation” for 2011 -

“Enter nonemployee compensation of $600 or more. Include fees, commissions, prizes and awards for services performed as a nonemployee, other forms of compensation for services performed for your trade or business by an individual who is not your employee.

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

•  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, partnership, estate, or, in some cases, a corporation; and

•  You made payments to the payee of at least $600 during the year.”

What should you include on for Form 1099?

Report only payments for services provided, and not for the reimbursement of expenses submitted to you.

If an independent contractor, like the private detectives on tv, charges “$200 a day plus expenses” (that $200 a day would now probably be $500 a day) for his/her services, and you were presented with a detailed list of specific expenses for travel, informant fees, research, supplies, etc for which you reimburse the contractor, the amount of this reimbursement should not be included in the amount you report on the Form 1099 you give to the contractor. The 1099 should only include the “$200 a day”.

If he/she worked 5 days and submitted a detailed expense report to you for $527.36 the Form 1099 you provide should be for $1,000 only ($200 x 5 days), and not the $1,527.36 that you actually paid.  If the fee was $200 a day plus a flat $50 a day for expenses then the Form 1099 would be for $1,250.  

Generally you do not have to issue a Form 1099-MISC for nonemployee compensation paid to a corporation.  Payments to corporations are reported only if they are for medical, health care, legal or fishing activities.

At one point I was a one-member LLC (Robert D Flach LLC) opting for the default filing as a sole proprietor on Schedule C.  Business clients who paid me $600.00 or more during the year had to issue me a Form 1099-MISC for my accounting and tax preparation fees.  I now operate as a corporation (Taxpro Services Corporation), so my business clients no longer have to give me a Form 1099 for my fees.

If a business paid a self-employed photographer, Wilson Photography, an unincorporated sole proprietor who filed a Schedule C (or if a partnership a Form 1065), $750.00 for taking publicity photos or photos used in a catalog it would have to issue a Form 1099-MISC.  If the photographer was Wilson Photography, Inc. no Form 1099 would be required.

You must include the payee’s Social Security Number or Employer Identification Number on the Form 1099.  If you do not have it call the payee or send him/her a Form W-9 to fill out and return to you.

TTFN