2022 Tax Compliance Update - 1099 Filing Deadline

If you think you may have a requirement to file 1099s for 2022, here is some helpful information regarding the filings and deadline.

The IRS is focusing heavily on taxpayer compliance with information reporting laws.

Beginning with tax year 2020, the IRS has revised Form 1099-MISC and created a new form, Form 1099-NEC, for reporting non-employee compensation and attorney fees (NEC). Form 1099-MISC will still be used to report miscellaneous payments such as rent, or payments to attorneys not for attorney services.  See details below.

Congress has sharply increased the penalties for compliance failures regarding the filing of Form 1099-MISC and Form 1099-NEC.  Please see penalties for failure to file listed below.

Rental Property Owners:  The Tax Cuts and Jobs Act offers a tax deduction of 20% for your qualified business income (QBI). Income from rental real estate income may qualify as QBI and the 20% deduction.  Only income from a qualified trade or business is eligible for the QBI deduction.  To ensure that your rental real estate activity is considered a trade or business, as opposed to an investment, all landlords should issue 1099s to vendors who are paid at least $600 for services performed. 

2022 Form 1099-NEC:

Who must file:

You must file Form 1099-NEC, Nonemployee Compensation, for each individual, partnership, or estate to whom payments of at least $600 are made in the course of your trade or business during the year. If the payments are to a registered C Corporation or S Corporation, a 1099-NEC is not required.

Attorney fees paid for legal services should be reported on Form 1099-NEC, even if that attorney, law firm, or legal service provider is a corporation, or an LLC that is treated as a C Corporation or an S Corporation.

Due Date:

Form 1099-NEC is required to be filed on or before January 31,2023 using either paper or electronic filing procedures.  Copy Ais filed with the IRS, Copy 1 is to the State, Copy B is for the recipient, Copy 2 is for the recipient to file with the State, Copy C is for the Payer’s records.

2022 Form 1099-MISC:

Who must file:

You must file Form 1099-MISC, Miscellaneous Income, for each individual, partnership, or estate to whom payments are made in the course of your trade or business during the year. Corporations and S Corporations do not require a 1099-MISC, unless the corporation is for attorneys. The most common reportable payments are included below:

(1) At least $10 in royalties (box 2).

(2) at least $600 in rents (box 1), prizes and awards (box 3), other income payments (box 3), medical and health care payments (box 6), etc. These do not apply to payments reported on your employee’s W-2.

(3) gross proceeds of $600 or more paid to an attorney, or to a corporation for legal services (but not the attorney’s services), for example, as in a settlement agreement or other legal payments that are not for the attorney’s service (box 10)

(4) check box 7 if payer made direct sales of at least $5,000 of consumer products to a buyer for resale. A dollar amount does not have to be shown.

Nonprofit organizations are considered to be engaged in a trade or business.

Due Dates:

• Copy B to Recipients- The due date to file 2022 Form 1099-MISCs with the recipients is January 31, 2023.
• Copy A to the IRS- The due date to file the 2022 Form 1099-MISC with the IRS is February 28, 2023, if you paper file, or by March 31, 2023, if you file electronically. 

Exceptions:

The most common payments for which you are not required to file a Form 1099-NEC or 1099-MISC include:

(1) generally, payments to a corporation (including an LLC this is treated as a C or S corporation);

(2) payments for merchandise, telegrams, telephone, freight, storage, and similar items;

(3) payments of rent to real estate agents or property managers (the property manager must use Form 1099-MISC to report the rent paid to the property owner);

For more specifics on these exceptions, please contact our office.

Information Needed to File Form 1099:

To properly complete Form 1099, you need to have the provider's name, taxpayer identification number (TIN) and address. You can request that information on Form W-9, Request for Taxpayer Identification Number and Certification, before work is done or payments are made.

If a provider does not supply you with a TIN, you are generally required to "backup withhold" 24% from any "reportable payments" and remit these withholdings to the IRS. 

Penalties for Failure to file Form 1099:

If you fail to provide Form 1099s and cannot show reasonable cause for the failure, you may be subject to the following penalties:

(1) $50 per information return for returns filed correctly within 30 days after the due date, with a maximum penalty of $588,500 a year ($206,000 for certain small businesses);

(2) $110 per information return for returns filed more than 30 days after the due date but before August 2, with a maximum penalty of $1,766,000 a year ($588,500 for certain small businesses);

(3) $290 per information return for returns filed after August 1, with a maximum penalty of $3,532,500 a year ($1,177,500 for small businesses); and

(4) For the intentional failure to file a Form 1099, the maximum penalty is the greater of $580 per return or 10% of the aggregate amounts of items required to be reported, with no limitation.

Filing Responsibility:

Unless you specifically engage us to prepare your 1099s, you are responsible for preparing and filing Forms 1099.

This letter is intended as a summary of the filing requirements only.  For more information, please contact our office.