1099 Rules You Should Know for the 2022 Tax Season
You are all set for the new year. You have your budget established, and you know what goals you want to achieve…you even are thinking about what tax documents need to be ready for your 2022 return!
One task that always hits business owners, CEOs, and photographers by surprise is the 1099s. Not because the deadlines or rules frequently change but because they are due so early in the year.
You may be starting off the year feeling like you are on top of your to-do list, accomplishing tasks, and hitting milestones, and then this big IRS deadline hits….oof.
In this article we are going to review the 1099 Rules You Should Know for the 2022 Tax Season. By the end, you will understand all the ‘need-to-know’ details to ensure you start the year on the right foot.
What are 1099s?
1099 is a reference to the tax form that is issued when a worker is paid. It is similar to a W-2 but those are for employees.
There are 2 types of 1099 forms, there is the 1099-NEC and the 1099-MISC.
The 1099-NEC is for Non-employee Compensation. This means workers who are not classified as employees. Think contractors, the gig economy, or any service you pay money for, generally.
The 1099-MISC is for other types of income you may receive, such as rent or prizes.
In this article, we will be primarily talking about the 1099-NEC.
As an individual, you may or may not have the 1099-MISC income to report. As a business owner, you very likely will be issuing (or receiving) 1099-NEC forms.
When are 1099-NECs due?
As we mentioned earlier, the deadline to submit these forms sneaks up on ya early in the year!
Your 1099-NEC forms must be submitted to the IRS and the contractor by January 31st.
Who gets a 1099-NEC?
This is the tricky part. There are a few rules around who does and does not get 1099. Below is a list of who should be issued a 1099-NEC. Let’s go through them and explain further:
Non-Employee Payment: The payment is being made to someone you do not classify as an employee. This could be a contractor you worked with for the entire year or a one-time service you hired someone for.
Service Payment: There are goods and services. This particular payment was made for services rendered to your business. This can include photography or bookkeeping services!
Individual, LLC, or Partnership: Service payments made to corporations do not receive 1099-NECs.
Payment Equals $600 or more: To issue a 1099-NEC the total payments for the year must have equaled $600 or more. This is where bookkeeping can come in handy if you have issued this contractor a bunch of smaller payments and are unsure whether they met this threshold.
Payments Made Directly (Not via Third Party): If you paid for these services with a credit card, debit card, or via a third party like Stripe, Paypal, or Upwork, these are also excluded.
If just one of these does not apply to a contractor, then no 1099-NEC is needed.
This checklist may feel extensive or confusing. You may have to follow up questions or unique scenarios that require some specific advice. That is ok! That is what accountants are for.
How to Make Sure You Don’t Miss A Contractor
You may be wondering, “Ok, I know who I do not need to issue 1099-NECs to but how do I remember everyone I worked with in 2022?”
Every accountant or business may have a different process for ensuring you have a complete list of service providers who may need a 1099-NEC.
Generally speaking, what you should do is collect a W-9 (The form you need to complete the 1099-NEC) during your onboarding process. Do this with every new contractor or service provider. Then at the end of the year, you will have all the proper documents to review and then issue, if needed, a 1099-NEC.
Even if this is part of your onboarding process, it is also a good ‘double-check’ to review your general ledger for the previous year. This is why good bookkeeping is so important!
As you review your general ledger you will remind yourself of all the transactions made. With this information, you can dig into each service payment to further determine whether they are eligible for a 1099-NEC.
Your business will likely be issuing and/or receiving 1099-NECs in 2023. They can be challenging to understand and stressful with how quickly they need to be issued in the new year. If you are looking for support in helping issue your 1099’s consider reaching out.
