Form 1099 Information Returns - Report Deadline Nears
By: David L. Marrison, Field Specialist, Farm Management, Barry Ward, Director of the OSU Income Tax Schools, and Jeff Lewis, Attorney and Program Coordinator- OSU Extension.
It is tax season! The Internal Revenue Service (IRS) expects over 140 million individual tax returns to be filed by the April 15, 2025 deadline. With tax returns set to be accepted by the IRS starting January 27, it's crucial for individuals and businesses to stay on top of important tax reporting deadlines.
One of the key requirements during this time is the proper reporting of income through 1099 forms. These forms, which report various types of non-wage income, need to be furnished to taxpayers by January 31. Additionally, copies also need to be sent to the IRS by the January 31st deadline (with a few exceptions) to avoid penalties and ensure timely processing of tax returns.
This article will provide an overview of 1099 forms, highlighting the specifics of the 1099-NEC, 1099-MISC, and 1099-K forms. Additionally, we will share reporting deadlines, penalties for non-reporting, and provide resource links from the IRS.
What is a 1099 Information Return?
A 1099 form is an information return used by businesses, financial institutions, and other organizations to report various types of income paid to individuals who are not employees. These forms are typically issued to independent contractors, freelancers, and vendors to report payments made for services rendered, interest earned, dividends, and other income types.
These returns help ensure that individuals and entities report income correctly on their tax returns. There are over 20 different 1099 forms. The major forms which farm families may receive include:
- 1099-NEC Non-employee compensation
- 1099-MISC Miscellaneous income
- 1099-K Income from third party vendors
- 1099-G Unemployment compensation or other government programs
- 1099-INT Interest income
- 1099-DIV Investment dividends and distributions
- 1099-PATR Taxable distributions from cooperatives
- 1099-S Proceeds from real estate transactions
1099-NEC
One of the most common 1099 forms used is the 1099-NEC, which reports payments to non-employees. The form is required to be issued when compensation totaling more than $600 (per year) is paid to a nonemployee for certain services performed for your business. If the following four conditions are met, you must generally report payment for nonemployee compensation on Form 1099-NEC:
- You made the payment to someone who is not your employee.
- You made the payment for services for your trade or business (including government agencies and nonprofit organizations).
- You made the payment to an individual, partnership, estate, or in some cases, a corporation.
- You made payments to the payee of at least $600 during the year.
Examples of “nonemployee compensation” could include hiring a neighboring farmer to harvest, spray, or plant your crops or independent contractors such as crop consultants, mechanics, accountants, and veterinarians. Payment for parts or materials used to perform the service (if the supplying of the parts or materials was incidental to providing the service) is included in the amount reported as nonemployee compensation.
Reporting is needed for payments made to unincorporated businesses (ie. sole proprietorship or a LLC that has elected to be taxed as a sole proprietor or partnership) for compensation of $600 or greater. Generally, payments to a corporation, or a LLC which has elected to be taxed as a corporation, do not require a 1099-NEC to be issued. Two exceptions which should be noted are for payments of $600 or greater to an attorney or veterinarian, regardless of business entity (corporation or unincorporated), need to be reported on the Form 1099-NEC.
If you are required to file a Form 1099-NEC, you must furnish a statement to the recipient and to the IRS by January 31 of each year or the next business day, if the due date is on a weekend or holiday. For the tax reporting year of 2024, the form is due January 31, 2025.
A form 1099-NEC can be issued even if the payment is below the $600 threshold or is to a party that you are in doubt as to whether you are required to issue this informational return. There are no prohibitions or penalties for doing this.
Previously, business owners would file Form 1099-MISC to report non-employee compensation. As a historical note, the Form 1099-NEC was re-introduced in 2020. It was previously used by the IRS until 1982 when the IRS added box 7 to Form 1099-MISC and discontinued the 1099-NEC form. Now, this compensation is listed in Box 1 on the 1099-NEC.
A reminder that greater scrutiny has been given to the improper classification of an employee as an independent contractor. It is your duty to make sure that you have classified properly. For tax purposes, the IRS provides guidance on making this determination through behavior control, financial control, and the relationship of the parties. Details can be found in IRS publication 1779 located at: https://www.irs.gov/pub/irs-pdf/p1779.pdf
Form 1099-MISC
The Form 1099-MISC is used to report a variety of income payments made to others and are made during your trade or business (not personal). These include, but are not limited to:
- At least $10 in royalties (box 2)
- At least $600 in:
- Rents (box 1)
- Prizes and awards (box 3)
- Medical and health care payments (box 6)
- Crop Insurance proceeds (box 9)
Reporting is needed for payments made to unincorporated businesses (ie. sole proprietorship or a LLC that has elected to be taxed as a sole proprietor or partnership) for compensation for each reporting thresholds ($600 or greater for rents or $10 for royalties). Generally, payments to a corporation, or a LLC which has elected to be taxed as a corporation, do not require a 1099-MISC to be issued. However, there are exceptions as noted previously.
One question, we receive from farmers is “do I need to issue a 1099 to the landowners which I rent ground from?” As a farmer, if you made the payment for services for your trade or business (ie. your farm business), then you will need to issue a 1099-MISC to landowners who receive $600 or more in land rental payments (in aggregate).
The reporting deadlines for the 1099-MISC forms are a little different than the 1099-NEC. The 1099-MISC must be to the recipient by January 31 (similar to 1099-NEC) but are not due to the IRS until February 28 for paper copies or March 31 for e-filed returns.
1099-K
The 1099-K form may be a new form to some of our farm managers. Form 1099-K tracks income made from selling goods or providing services via payment apps and online marketplaces. Examples include (but are not limited to) PayPal, Venmo, Square, and Ebay. Payment card companies, payment apps, and online marketplaces are required to fill out Form 1099-K and send it to the taxpayer and to the IRS by January 31. You will receive a 1099-K if:
- If you take direct payment by credit or bank card for selling goods or providing services. If customers pay directly by credit, debit or gift card, you will receive a Form 1099-K from the payment processor or payment settlement entity, no matter how many payments received or how much they were for.
- A payment app or online marketplace is required to send you a Form 1099-K if the payments received for goods or services total over $5,000 (2024 limits). However, they can send you a Form 1099-K with lower amounts.
Please note the reporting thresholds will change going forward. Third-party payment network transactions previously only needed to be reported for payees with more than 200 transactions and $20,000 in aggregated payments. The American Rescue Plan Act of 2021 repealed this threshold and requires reporting for aggregate payments of $600 or more, regardless of the number of transactions.
The IRS is taking a phased in approach to the implementation of the American Rescue Plan Act of 2021 and guidance was provided on November 26, 2024 (https://www.irs.gov/pub/irs-drop/n-24-85.pdf). The phased-in reporting thresholds are:
- $5,000 in 2024
- More than $2,500 in 2025
- More than $600 in calendar year 2026 and thereafter.
Whether or not you receive a Form 1099-K, you must still report any income on your tax return. If you accept payments on different platforms, you could get more than one Form 1099-K. Personal payments from family and friends should not be reported on Form 1099-K because they are not payments for goods or services.
Additional Note:
Starting in tax year 2023, if you have 10 or more information returns, you must file them electronically. Electronic copies can be submitted through the IRIS Taxpayer Portal at http://irs.gov/iris or through a third-party software provider.
Penalties
If you fail to file a correct information return by the due date (to the IRS and/or taxpayer) and cannot show reasonable cause, you may be subject to a penalty. Penalties are changed for each information return which is failed to be filed to the IRS on time and to each payee (a penalty for each). These penalties can range from $60 to $660 depending on the number of days which the filing is late. Additional penalties can also be assessed for intentional disregard. Interest is also charged. More details can obtained at: https://www.irs.gov/payments/information-return-penalties
IRS Resources:
The following resources are available from the IRS with regards to the informational returns discussed in this article.
Publication 1220: https://www.irs.gov/pub/irs-pdf/p1220.pdf
1099-NEC: https://www.irs.gov/forms-pubs/about-form-1099-nec
1099-MISC: https://www.irs.gov/forms-pubs/about-form-1099-misc
1099-K: https://www.irs.gov/businesses/understanding-your-form-1099-k
1099 Penalties: https://www.irs.gov/payments/information-return-penalties
Disclaimer:
The information provided in this article is for educational purposes. This article was designed to provide accurate tax education information. Farm managers are encouraged to seek the assistance of qualified tax professionals with the completion of their taxes.