New 1099 Reporting Rules

The passage of the Healthcare reform bill and the Small Business Jobs Act included some of the most drastic changes to 1099 information reporting in over a decade. There has been some confusion as to when certain changes will take place. We hope to clarify in this email effective dates and changes in Internal Revenue Code Sec. 6041.

What are the general provisions of the bill?

  • The elimination of the corporate exemption from 1099-MISC reporting
  • The requirement to report payments for property (goods, materials, merchandise, supplies, etc.)
  • A six-fold increase in penalties from $250,000 to 1.5 million
  • A doubling of penalties per information return from $50 to $100

What's effective in 2011?

For real estate investors, January 1, 2011 is the starting date for new 1099 reporting rules. Effective January 1st, you must track payments you make to all businesses and individuals that you buy services from. Once you have paid $600 or more to any one business or person in connection with any kind of rental property expense, you will need to report those payments to the IRS and issue each person or business a form 1099-MISC next January. It is important that real estate investors provide Form W-9 to vendors to obtain the Federal Employer Identification Number or Social Security Number required for reporting.

What's coming in 2012?

Beginning for payments made after December 31, 2011, organizations will be required to furnish and file form 1099-MISC for payments made to all for-profit companies regardless of corporate status. Previously corporations were exempt from receiving 1099-MISC, this exemption has been repealed. In addition all payments for goods, materials, merchandise, supplies, and other property will need to be reported as well. This significantly expands the number of 1099-MISC forms organizations must issue.

What do I need to do to get ready for the 2012 changes?

While the law applies to payments made after December 31, 2011, it's not too early to start getting ready to deal with these changes. Organizations need to:

  • Update W-9 procedures to include all vendors
  • Solicit W-9's for corporate vendors
  • Prepare for larger 1099 year-end printing, mailing, and filing requirements
  • Make the appropriate budgetary and system updates to accommodate these changes

What are the penalties if I do not comply?

Under Section 6721 of the Internal Revenue Code, penalties may be assessed for failure to file correct information returns by the due date, without reasonable cause. This includes forms in the 1099 series. The penalty may also apply if you show incomplete or incorrect information, or file on paper when you were required to file electronically, or fail to file machine readable paper forms. Click here to learn more. Also, if appropriate tax identification number information is not obtained, organizations may be required to do backup withholding. If the required withholding is not done properly the organization may also be liable for the taxes that should have been withheld along with penalties.