January 31st is almost here and if you are a small business owner that paid contractors last year you probably have some questions…well guess what? You are not alone! A few weeks ago I posted a video talking about the 1099 NEC form, and I got some good questions in the comments and I’m a big believer that if one person has a question, another one has the same so stay tuned because I’m going to go over those FAQs and provide the answers you are looking for.
As I said, I received some great questions in the comments so let’s take a look:
Can we still use the old 1099 MISC form for non-employee compensation?
Well, that’s a really great question! And since this is the first year that we are using the new 1099 NEC form, I really don’t have any personal experience on whether the IRS is actually going to let us submit old 1099 MISC forms or not. I will say if you’re using online software to produce these 1099 forms, which I think is a really great option, then you won’t have to worry about it because they’ll have the most updated forms and it will default to the 1099 NEC form. Now, if you’ve purchased forms or you’re somebody who purchases forms, and you are going to be mailing them in to the IRS, then I would say go ahead and get the 1099 NEC form. Just use the new form, you want to use the form that has the correct year on it anyways, and if you grab the 2020 1099 MISC form, you’ll notice that there’s not a box there that says non-employee compensation like there used to be. So you would be kind of forced to put it into the miscellaneous income box and I’m just not sure that’s exactly what the IRS wants us to do. So, my advice and best practice would be to go ahead and use the 1099 NEC form; it’s the form that IRS has released and asked us to use, and then you won’t have any worries about whether you sent in the wrong form or if you’re going to get a notice from them letting you know that you need to redo them all. It’s best just to use the correct form right from the start and you’ll be good to go!
Do I need to put a dash between the numbers on the Tax Identification Number (TIN)?
This is another great question! And the answer is that they are going to accept the form whether you have the dashes or not. Again, if you are using online software, it’s going to default for you and it will print those forms the way that they see as best practice and standard-and from which I see it always has the dashes. Now depending on the individual or the business, you are issuing a 1099 to, you may have a social security number or you may have an EIN. A social security number has nine digits – 3 followed by a dash, two more, a dash, and then the last three. An EIN typically has two digits, a dash, and then 7 digits following. So whichever one that you received from your vendor/contractor that you paid, whether you have a social security number or an EIN, I would say that the best practice would be to go ahead and use those dashes there. Now, if you don’t use the dashes it is likely that your form will still get accepted, you won’t get a notice and they will still be able to tie that to the correct individual or business.
As a salon owner that rents chair space to individuals, should I be receiving a 1099 for the rent they paid?
The answer is, yes, as long as you are not a corporation (so as long as you are operating as a Sole Proprietor or an LLC), the individual renting chair or booth space from you should issue a 1099 to you for the rent they paid you throughout the year. This can be reported on the 1099-NEC form, box 1 since it’s not likely an official lease with you being the landlord. So it doesn’t technically need to go in the rent section on the 1099 miscellaneous, it can go in the 1099-NEC, box 1. But again, the answer is yes, anybody who is renting space from you in a salon whether it is a booth or a chair, they should be issuing and submitting a 1099 for you showing the amount that they paid.
Will Fiverr, Upwork, or similar third party solutions issue 1099s or do I need to?
Actually, the answer is neither of you will issue 1099s to those contractors and the reason is that these contractors that are working for places like Fiverr and Upwork, are not actually working for Fiverr or Upwork, they’re not contractors of those organizations or employees. The way they are working for you through these solutions means that you do not have the responsibility to file a 1099 either. So, as a Fiverr or Upwork contractor, you really need to keep track of the money you are receiving and keep some really good records on your own because as a contractor of Fiverr or Upwork, you will need to report the income you have received. However, there is no responsibility for Fiverr or Upwork to report or issue a 1099 as well as a small business owner. If you have contracted individuals or small businesses through those platforms, you also do not have the responsibility to issue the 1099.
Do I need to issue a 1099 to the vendors that I paid via Venmo?
The answer to this is yes because Venmo does not issue 1099s. As a matter of fact, I have talked about this in another video, but Venmo actually kind of frowns upon you using their platform to pay for products or services for business transactions. So, they definitely do not issue 1099s to anybody that was paid on that platform. I know some things are changing with the business solution that they have, but most people are still using that free solution. And with that, they are not going to issue 1099s. So the best practice would be that if you paid a contractor through Venmo and it added up to more than $600 for any given year, then yes, you should issue a 1099 NEC, use that box 1, to report the income that you paid them for that year.
Alright, that’s it! Weren’t those some really good questions?! If you have any other questions about 1099s, please make sure to leave a comment. I hope this was helpful info as we come upon the 1099 deadline and also as we head straight into tax season here shortly! Be sure to check out my other blogs regarding third-party payments because I might just answer some of your questions there as well.