This is an excerpt from a presentation I give to business owners and HR professionals about Form 1099.
Why file a Form 1099? It’s the law – and the IRS is increasing enforcement in this area.
Who must issue a 1099? Generally, any business – regardless of its structure (sole proprietor, corporation, etc.) – that has “reportable transactions” during the year must issue a 1099 to the recipient of income, and also report the information to the IRS.
What constitutes a reportable transaction depends on the nature of the transaction. Here is a sampling of the reporting requirements for some of the popular types of Form 1099 that a typical business is likely to issue:
- Form 1099-DIV: an incorporated business may need to issue a Form 1099-DIV to shareholders if the business paid dividends of $10 or more to a shareholder.
- Form 1099-INT: issued for interest payments of $10 or more to an individual during the year. Note that, for lending institutions, the value of gifts given to people who open new accounts (tote bags, coffee mugs, etc.) must generally be included as an interest payment if the value of the gift is more than $10 for deposits of less than $5,000, and more than $20 for deposits of $5,000 or more.
- Form 1099-MISC must be issued for payments totaling $600 or more during the year to unincorporated independent contractors, or for payments of $600 in rent.
- Form 1099-R: a business may need to issue a Form 1099-R if the business maintains a retirement plan and an employee (or ex-employee) withdraws money from a plan. In typical situations, the third-party administrator of the retirement plan will issue the 1099-R, but the responsibility for issuing the form technically lies with the employer.
In the next part, we’ll go into more detail about situations with Form 1099-MISC involving payment to corporations, and payments to employees.