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Focus on Entrepreneurial Services: 1099 Information Return Requirements & 2016 Payroll Tax Guide

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What to Report in 2015 — Payments of $600 or more to individuals, sole proprietorships or partnerships for rent, prizes or awards, or services rendered for a trade or business by individuals, sole proprietorships and partnerships not treated as their employees.
January 20, 2016

What to Report in 2015

Payments of $600 or more to individuals, sole proprietorships or partnerships for rent, prizes or awards, or services rendered for a trade or business by individuals, sole proprietorships and partnerships not treated as their employees. Dividends, interest and royalties must be reported whenever the payment is $10 or more. Payments to corporations for medical services also must be reported on Form 1099-MISC. You do not have to file a 1099 for payments made with a credit card.

Payment to attorneys: Attorney’s fees of $600 or more paid in the course of your trade or business are reportable in Box 7 of Form 1099-MISC. However, if you make a payment in the course of your trade or business to an attorney in connection with legal services and the attorney’s fee cannot be determined, the total amount paid to the attorney (gross proceeds) must be reported in Box 14.

These rules apply (a) whether or not the legal services are provided to the payer, and (b) whether or not the attorney is the exclusive payee (e.g. the attorney’s and claimant’s names on one check). However, these rules do not apply to profits distributed by a partnership to its partners that are reportable on Schedule K-1.

The exemption from reporting for payments made to corporations does not apply to payments made for legal services or medical and health care payments.

How to Report

Electronically.You can file electronically through the Filing Information Returns Electronically System (FIRE System); however, you must have software that can produce a file in the proper format. The FIRE System does not provide a fill-in form option. The FIRE System can be accessed via the internet at http://fire.irs.gov. See IRS Publication 1220 for more information.

Electronic Filing. You are required to file your 1099s electronically if you file 250 or more information returns. This requirement applies separately to each type of form.

To get approval to file electronically, file Form 4419, Application for Filing Information Returns Electronically, no later than 30 days before the due date of the return(s).

To receive a waiver from filing electronically, submit Form 8508 at least 45 days before the due date of the return.

Where to File

Federal (if business located in Missouri, Kansas, Colorado or Illinois):

Internal Revenue Service
Kansas City, Missouri 64999

Due Dates

To Recipient: February 1, 2016 (February 16, 2016 if box 8 or 14 include payments)

To IRS: February 29, 2016 (March 31, 2016 if filing the Federal forms electronically)

Penalties: The Trade Preferences Extension Act of 2015 increased Form 1099 reporting penalties for returns required to be filed after December 31, 2015. If you fail to file a correct information return by the due date and you cannot show reasonable cause, you will be subject to a penalty. The penalty applies if you fail to file timely, fail to include all required information, or include incorrect information on the return. The penalty also applies if you file on paper when you were required to file electronically, you report an incorrect TIN or fail to report a TIN, or if you fail to file paper forms that are machine-readable.

The amount of the penalty is based on when the correct information returns are filed. The penalties are as follows:

  • $50 for each information return if the correct information is filed within 30 days after the due date (by March 30 if the due date is February 28), with a maximum penalty of $500,000 per year ($175,000 for small businesses—defined below)
  • $100 for each information return if the correct information is filed more than 30 days after the due date but before August 1, with a maximum penalty of $1,500,000 per year ($500,000 for small businesses—defined below).
  • $250 for each information return that is not filed at all or is not filed correctly by August 1, with a maximum penalty of $3,000,000 per year ($1,000,000 for small businesses—defined below).

Small Business: You are a small business if your average annual gross receipts for the three most recent tax years (or for the period you were in existence, if shorter) ending before the calendar year in which the information returns were due are $5 million or less.

Exceptions to the Penalty: In general, the penalty will not apply to any failure that you can show was due to reasonable cause and not to willful neglect. In addition, the penalty will not apply to a de minimis number of failures. These failures are information returns that were filed timely, but with incomplete or incorrect information and were corrected by August 1. The penalty will not apply to the greater of 10 information returns or one-half of 1 percent of the total number of information returns that are required to be filed for the year.

Failure to Provide Statement or Providing Incorrect Payee Statement: The penalty for failure to furnish a payee statement involves tiers and caps similar to those applicable to the penalty for failure to file the information return. These penalties may apply when there has been a failure to furnish a payee statement to the person prescribed by the required due date, a failure to include all of the required information on the payee statement or if incorrect information has been included on the payee statement.

Penalties for Intentional Disregard: Higher penalties of at least $500 per document may be imposed for intentional disregard for filing, providing payee statements, and correct information reporting requirements with no maximum penalty.

Ordering Forms: Order your forms from the IRS office by calling 1-800-TAX FORM or through its website, http://www.irs.gov/businesses/page/0,,id=23108,00.html. For state and local forms, download or order forms from their respective websites.

Note: Only Federal reporting requirements are listed. Please inquire with your state agency for state specific reporting requirements.

 

The 2016 Payroll Tax Guide is available! Click here to view it now.

 

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.

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