Hired independent Contractors?

If you have a small business and hired independent contractors in 2014 then you may have a responsibility to file information returns and issue 1099’s to those contractors by 1/31/2015.  Failure to do so will result in penalties imposed by the IRS.

The IRS requires that you file information returns (1099’s) for cash and check payments issued by your trade or business to individuals not treated as your employees as well as non-incorporated entities.  You will have this requirement if you issued payments of:

  • $10 or more of
    • Dividends, Interest and Royalties
  • $600 or more to
    • Contract Labor, Commissions, Director Fees and
    • Other Non-employee Compensation
    • Professional Fees
    • Rents (other than to real estate agents)
    • Attorney’s Fees for legal services
  • No minimum
    • Payments to attorneys for settlements

There was an important change to 1099 reporting that must be considered in compiling 1099 amounts. The new 1099-K form will be issued for all merchant and third-party network payments. Basically, this new form will report all payments made to businesses via credit card processor. The merchant and third-party companies are responsible for preparing 1099-Ks; therefore, any items a business pays through a credit card should not be included in the amounts compiled for 1099-Misc forms such as Pay-Pal.

Other Exceptions:

  • Payments for merchandise, telegrams, telephone, freight, storage, and similar items
  • Payments of rent to real estate agents (real estate agent must use Form 1099-MISC to report rent paid to property owner)
  • Wages paid to employees
  • Business Travel Allowances paid to employees
  • Cost of current life insurance protection (report on W-2/1099-R)
  • Payments to a tax-exempt organization including tax-exempt trusts (IRAs, HSAs, Archer MSAs, Coverdell ESAs), the United States, a state, the District of Colombia, a U.S. possession, or a foreign government

 Generally, payments to corporations are exempt with the exception of legal services.

The following payments made to corporations generally must be reported on Form 1099-MISC:

  • Medical and health care payments (box 6)
  • Fish purchases for cash (box 7)
  • Gross proceeds paid to an attorney (box 14)
  • Substitute payments in lieu of dividends or tax-exempt interest (box 8)

Please contact us if you would like Pace Accounting to file these forms for you.  To assure accurate preparation, please forward the following for each person or business:

  1. W9 form
  2. Total amount they received for each
  3. Type of compensation (rent, dividends, fees for legal services, etc)