Payroll News

Varying Federal, State Requirements Govern Form 1099-MISC

May 15, 2019, 6:25 PM

Payroll professionals issuing Forms 1099-MISC, Miscellaneous Income, for payments made to nonemployees have a variety of federal reporting considerations to make and differing state reporting requirements to comply with, an educator said May 15.

Form 1099-MISC is generally used to report payments to nonemployee individuals and noncorporate entities, but not corporations, of at least $600 in a year, said Jim Medlock, a payroll compliance educator for Medlock and Associates. Nonprofits and federal, state, and local governments must issue the form as well, he said.

While the form as used for federal purposes has not changed for more than 10 years, states have their own requirements regarding what kinds of payments Form 1099-MISC should be used to report, as well as when the forms should be sent to the state, Medlock said.

Payors issuing at least 250 information returns must file them electronically with the Internal Revenue Service, Medlock said. However, a bill (H.R. 1957) that passed the House on April 9 would decrease the federal electronic-filing threshold to 100 forms in 2021 and 10 forms in 2022, he said. The bill also would direct the IRS to create an online portal by 2023 that would allow payors to prepare and file Forms 1099, prepare the forms for payees, and keep a record of the forms issued. The bill is being considered by the Senate and may undergo significant changes, he said.

Federal Reporting Requirements

Payors issuing Forms 1099-MISC should first ask the payee to fill out Form W-9, Request for Taxpayer Identification Number and Certification, Medlock said. If the payee is a company, Form W-9 helps determine what kind of entity the payee is, as payments to corporations are generally not required to be reported, he said. The payee may also fall under one of Form W-9’s exemptions from backup withholding or from reporting under the Foreign Account Tax Compliance Act, Medlock said.

The form should only be used to report payments made in the course of a payor’s trade or business to nonemployees, Medlock said. Certain payments, such as for merchandise or any payments made to an employee that would be reported on Form W-2, Wage and Tax Statement, should not be reported on Form 1099-MISC, he said.

Examples of payments to corporations that should be reported include payments to providers of medicial or healthcare services, which should be reported in Box 6, Medical and Healthcare Payments, Medlock said.

Forms 1099-MISC are due to the IRS by Jan. 31 if payments are reported in Box 7, Nonemployee Compensation, Medlock said. If no payments are reported in Box 7, the form is due by Feb. 28 if filed on paper and March 31 if filed electronically, he said.

The forms filed with the IRS may not truncate the payee’s identification number -- which may be a Social Security number, employer identification number, or an individual taxpayer identification number -- but the forms issued to the payee may do so, Medlock said.

State Requirements

Most states use Form 1099-MISC for state purposes to report the same kinds of payments as reported for federal purposes, but each state differs in due dates and payment-reporting requirements, Medlock said.

Many states require filing Forms 1099 with the state only if state income tax is withheld, while Illinois, for example, does not require Forms 1099 to be filed at all, Medlock said. States may also have different payment-reporting thresholds than the federal $600 threshold, such as California, which requires all payments to be reported, or Alabama, which has a $1,500 threshold, Medlock said.

States may have other electronic-filing thresholds than the federal threshold of 250 forms, Medlock said. However, most states use the IRS’s electronic-filing format and generally match the federal electronic-filing due date of Jan. 31, he said.

Thirty states participate in the IRS’s combined federal and state filing program, in which forms are filed with the IRS only and the agency sends relevant data to the states, Medlock said. The states that do not participate in the program primarily do not wish to wait the several months that the IRS takes to send out the data and would rather have payors file directly with the state, he said.

To contact the reporter on this story: Jamie Rathjen in Washington at jrathjen@bloombergtax.com

To contact the editors responsible for this story: Michael Trimarchi at mtrimarchi@bloombergtax.com and Michael Baer at mbaer@bloombergtax.com

To read more articles log in. To learn more about a subscription click here.