Do you own a business that hired contractors in 2015? Did you pay rent? Hire an attorney? If so, you may be subject to filing a 1099-MISC informational return. This is not a requirement to take lightly; as you’ll see below, the penalty is quite punitive!
Do You Need to File a 1099-MISC?
As a business, if you have a transaction that falls into one of the below categories, you are required to file a 1099-MISC for each entity you paid (Note: In most cases, if the entity you paid was a corporation, you are not required to file for them):
- Paid at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest;
- Paid at least $600 in rents, services (including parts and materials), prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish, or, generally, the cash paid from a notional principal contract to an individual, partnership, or estate
- Paid any fishing boat proceeds
- Paid gross proceeds of $600, or more paid to an attorney during the year
- Withheld any federal income tax under the backup withholding rules regardless of the amount of the payment
- Had direct sales of at least $5000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment
Complete and correct 1099-MISCs must be filed with the IRS and furnished to the payee no later than January 31, 2016. Violations typically fall under two IRS categories, Failure to File Correct Information Returns by the Due Date and Failure to Furnish Correct Payee Statements. Both categories of violations have the same penalty structure, as follows:
- $50 per information return if correctly filed within 30 days ($532,000 maximum per year)
- $100 per information return if correctly filed more than 30 days after the due date, but by August 1st ($1,596,500 maximum per year)
- $260 per information return if correctly filed after August 1st or not filed at all ($3,193,000 maximum per year)
- $530 per information return if failure is due to intentional disregard of the filing or correct information requirements (no maximum penalty)
As you can see, the penalties are quite steep, and can really add up for multiple violations. For more information, check out what the IRS has to say about 1099-MISCs.