New IRS Rules about Forms 1099 for 2020-21: Have you paid an individual who is not an employee? Did the payments made to the individual exceed $600? Then you need to issue a 1099 Form to the individual by the year-end. Report the income paid to the individual on the 1099 information return form and submit it to the IRS within the deadline.
Doesn’t know much about Form 1099? We will let you know about the new IRS rules for the tax year 2020-22 about issuing 1099 Tax Forms. Furthermore, we provide you information about how the revised tax form looks like.
What are the New Rules Implemented by the IRS on 1099 Tax Form?
Over the past few years, there are numerous changes and updates regarding reporting rules for 1099 Forms. Form the 2020 tax year, the IRS implemented new rules in reporting requirements of 1099 Tax forms and introduced a new 1099 Form. The IRS has added a new Form in the 1099 series to report non-employee compensation separately and redesigned familiar 1099 MISC.
Moreover, it also made a change in reporting threshold of filing information returns electronically to 250 or more. Finally, the change also occurred in late filing information returns to the IRS. The penalty for delay in filing 1099 Form is between $50 – $550 per information return.
How did the Revised 1099 Forms Look Like?
Form prior years, Forms 1099 issued only to individuals and partnerships, not to corporations. But now, corporations now included in the pool of 1099 Form recipients. Corporations include C, S or, LLCs. When you hire an individual, who is single-member LLC, then you can issue a 1099 Form to the individual. Previously, information return forms were issued only for rents, services, and financial transactions. But now, the sales of tangible goods are also reported on Federal 1099 Forms.
What Stays the Same on Federal 1099 Forms?
The minimum reporting threshold remains the same on Federal 1099 Forms. As we know earlier, $600 is the minimum amount reported through the appropriate 1099 Form to the IRS. The payments made below the threshold are not reported on information returns. But the payee who receives multiple 1099 incomes must report it on the tax return form to the Internal Revenue Service.
How the IRS Controls Fraudulent 1099 Reporting?
As per the IRS rules, every income paid to an individual must be reported on the respective 1099 Tax Form to the IRS. Due to this, the businesses who sell goods online must report their hidden income on the appropriate tax return. This intended the IRS to cut down the fraudulent deductions. Suppose, if your business spent $500 on window cleaning services, then you need to issue a clear 1099 Form. If in case, when you report $1,000 spent for window cleaning service, but in actual you have spent $500. The IRS may treat it as fraudulent returns.
Additionally, the business individual may face the risk of paying penalties that are heavy and hefty. Likewise, the individual who receives 1099 income must report it on the tax return form. If in case, you have forgotten to include 1099 income, then be ready to get the notice from the IRS regarding penalties and fines.
1099 Tax Form Expanded Reporting Requirements
Expanding requirements of 1099 Forms is not only businesses keep records of the payments, but they must also keep a track of TIN and addresses of the contractors. This means the payer must request the contractor to fill out W-9 Form before the contractor receives the first payment. As we know, W-9 Form reports the payee’s name, address, TIN, etc., which is used to fill out the information returns correctly.
It plays an important role in filing 1099 Tax forms because any mistake in the payee details may lead the payer to withhold taxes. So, the payer is responsible to collect W-9 Forms from the contractor and keep records of the payees who work for the business throughout the tax year.
1099 Form Exempted Payments
Given below are the payments excluded from reporting on 1099 Tax Form:
- If you hire a non-US citizen for remote work which not performed within the US, then you not required to file a 1099 Form.
- Payments made to individuals who are C or S corporations excluded in reporting.
- When you made payments to services such as lawn mowing not reported on 1099 Form.
- Payments for freight, storage, telephone, merchandise exempted.
- Compensation paid by the Department of Justice for disability benefits is not reportable.
- Payments made to employees like wages, or rewards not reported on 1099 information return form.
- Some benefits for dependents of deceased public safety officers excluded in reporting on Form 1099.
- Fellowship grants, scholarships, as well as payments for wrongful incarceration not reported.
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