Frequently Asked Questions about 1099s
What is a 1099?
A 1099 is an IRS tax form to report non-employee income. The burden of filing is on the payee. The most common types of income to be 1099’ed are services provided by an independent contractor, legal services and rent paid. Services provided by a Corporation are exempt (see the last question below regarding how this does not apply to legal services); however individuals, sole proprietors, LLCs and LLPs should all be 1099’ed.
Is a 1099 issued on services and reimbursable expenses?
If documentation (receipts) is provided by the service provider, then 1099 reported income should exclude reimbursable expense amounts. If, however, no documentation is provided, the full amount paid to the service provider should appear on the 1099. Please be sure to have documentation handy as we prepare to calculate the 1099 amounts at the end of the year.
Do we 1099 for rent paid to co-working companies like WeWork? What if the rent invoice says “Dues” or “Membership”?
All rent is 1099’ed regardless of what they call it. Even machinery rental is 1099’ed. See the following guidelines straight from the IRS:
Box 1. Rents
Enter amounts of $600 or more for all types of rents, such as any of the following:
- Real estate rentals paid for office space. However, you do not have to report these payments on Form 1099-MISC if you paid them to a real estate agent. But the real estate agent must use Form 1099-MISC to report the rent paid over to the property owner. See Regulations section 1.6041-1(e)(5), Example 5.
- Machine rentals (for example, renting a bulldozer to level your parking lot). If the machine rental is part of a contract that includes both the use of the machine and the operator, prorate the rental between the rent of the machine (report that in box 1) and the operator’s charge (report that as non-employee compensation in box 7).
Do 1099's need to issued for payments made through credit cards or PayPal (any third party except cash/check)?
Payments made with a credit card or payment card and certain other types of payments, including third party network transactions (i.e PayPal), must be reported on Form 1099-K by the payment settlement entity under section 6050W and are not subject to reporting on Form 1099-MISC. See the separate Instructions for Form 1099-K. This means if you pay the same entity via check and PayPal only the amount paid by check would be reported on the 1099 we issue on your behalf.
How do payments to attorneys get reported?
The term “attorney” includes a law firm or other provider of legal services. Attorneys’ fees of $600 or more paid in the course of your trade or business are reportable in box 7 of Form 1099-MISC. The exemption from reporting payments made to corporations does not apply to payments for legal services. Therefore, you must report attorneys’ fees as described earlier to corporations that provide legal.