Most businesses hire at least some independent contractors. Since you’ll probably need to issue far fewer Forms 1099-MISC than W-2s, it’s easier to get the ball rolling on your 1099-MISC year-end procedures. Here’s what you need to know.
Form 1099-K. If you’ve paid for independent contractors’ services with a credit card, debit card, gift card or used another electronic payment medium (e.g., PayPal), you no longer need to send them Forms 1099-MISC. Instead, the payment settlement entity (usually the bank that’s contractually obligated to pay the payee) sends them Form 1099-K.
TIN truncation. Earlier this year, the IRS announced it is extending the Taxpayer Identification Number (TIN) truncation pilot program through 2012 (i.e., for 1099s that are filed in 2013). Payees’ TINs may be truncated on their paper copies only; forms filed with the IRS must contain their full TINs. Under the truncation procedure, the first five digits are replaced with either asterisks or Xs: ***-**-1234 or XXX-XX-1234.
Year-end to-do list. If you paid noncorporate service providers at least $600 in cash for services this year, you must provide them with Form 1099-MISC by Jan. 31, 2012. Forms may be provided to recipients electronically, if they consent. Don’t overlook these potential recipients:
- Outside accountants and lawyers
- Auto mechanics and service stations that repair company cars
- Plumbers, electricians, painters, carpenters, tech consultants or office cleaners
- Equipment lessors and repair people
- Office and company car lessors.
INK ON INC: The words “Corporation,” “Corp.,” “Incorporated” or “Inc.” on service providers’ letterheads, business cards or invoices mean they’re corporations, so no 1099-MISC reporting is necessary. Hitch: If “Company” or “LLC” is used, you’re not off the 1099 hook. You must also provide forms to sole proprietorships, partnerships and attorneys who do business as corporations.
Bottom line: You can’t go wrong sending out more 1099s than are required, but you set yourself up for penalties by sending out fewer.