If your business has paid at least $600 in professional services or other payments in 2011, you may be subject to a new 1099 reporting requirement as you begin to file your 2011 taxes.
Business owners must obtain the Taxpayer ID number, typically a social security number, for anyone to whom they’ve paid $600 or more, and record the amount paid in 2011. If the person or company does not provide their tax ID number, they are generally subject to a withholding rate of 28 percent on payments required to be reported.
if more than $600 or more was paid in 2011 include:
- Professional services fees
- Fee-splitting or referral fees
- Fees paid to independent contractors
- Director’s fees
- Fish purchases for cash
- Healthcare payments
The 1099s are required to be provided to service providers by January 31, 2012, and copies of the 1099 must be submitted to the IRS by February 28, 2012.
If your business fails to file a required 1099, it could result in a $100 fine per form. However, if the IRS determines there was willful neglect in failure to file the forms, the fine can increase to $250 per form. Taxpayers will notice new questions on Schedule C, E and F which refer to payments made that require the taxpayer to file a Form 1099.
You may have heard that certain 1099 requirements have been repealed during the past year. The reporting requirements mentioned above remain in place. However, two requirements that were created as part of an effort to pay for healthcare reform have been repealed. Payments made to corporations are no longer subject to the special 1099 reporting rules. Also, real property rental businesses are no longer subject to the special 1099 reporting rules.
If you believe you may be required to report payments your business made in 2011 through Form 1099, be sure to discuss them with your tax advisor. Certain types of payments are exempt from reporting, and your advisor can assist you in determining the required reporting.
Joseph Popp, JD, LLM, also contributed to this article.