Although 1099s aren’t prepared and mailed until January, the preparation actually begins when the worker is contracted to do a particular job. It’s at this time that a W-9 needs to be filled out, giving the payor the worker’s tax ID, tax classification, and address-all of which is needed to properly submit 1099s in January of the following year. Waiting to obtain this information can prove to be tricky, especially if an affiliation with the worker is not maintained throughout the year. Another obstacle that can hinder the process, is the refusal of the worker to give the payee the information needed. In this instance, a 1099-NEC can still be completed, replacing the lacking tax ID number with “refused”. You will want to make note of each time you requested the completed W-9 to reduce your chance at penalties assessed by the Internal Revenue Service. Also, any future payments to the worker should be reduced by 28% for backup withholding.
Speaking of penalties, the consequences for not filing Forms 1099 timely are high. Forms 1099-NEC are due on January 31. If the forms are mistakenly filed late or not filed at all, the penalty can range from $50 to almost $300 per Form 1099. If the forms are intentionally disregarded, the penalties can be as much as almost $600 per Form 1099.
In short, follow these steps to ensure that you are compliant with the Internal Revenue Service’s requirement to file Forms 1099-NEC:
- Request a completed Form W-9 from any attorney or non-employee that performs a service for your business or trade (think repairs, shredding, contract labor, etc.)
- Maintain good records of payments for the service and ensure that they are allocated properly in your general ledger
- Complete and file Forms 1099-NEC as well as the Form 1096 transmittal for anyone mentioned above that you paid at least $600 by January 31 of the following year