Contractors around the nation have been indicating confusion over how and when to issue IRS Form 1099-MISC, due in large part to back-and-forth changes in reporting requirements over the past two years. The problems began in March 2010, when the Patient Protection and Affordable Care Act  (often referred to as “ObamaCare”) was signed into law. That law expanded the 1099 reporting requirements by forcing a business to send a Form 1099-MISC to anyone it bought more than $600 worth of goods or services from in a calendar year. In other words, you would send a Form 1099-MISC to your local deli (or Staples, Burger King, etc.). Thankfully, this was repealed April 14, 2011, as part of the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011.

Woe is W-9

So, for 2011, 2012, and 2013, as a rule, if you are in business and you pay $600 or more in a year for services — not goods — to another business or to someone who is not your employee, then you must issue a Form 1099-MISC to that business or person. This includes commissions paid to an independent contractor. In most cases, the 1099 must be filed with the recipient and the Internal Revenue Service by Jan. 31 of the following year.

The big exception to the 1099-MISC reporting requirement is that you don’t need to send a 1099-MISC to corporations, although, as with everything else in tax law, even the exceptions have exceptions. E.g., you have to send a 1099-MISC to your attorney, even if he operates a practice as a corporation.

How do you know if the business you paid $1,300 to last year was actually a corporation? You need to have your vendors and suppliers complete a Form W-9, on which they will indicate the exact structure they use for their business. If one of the “corporation” boxes is checked, don’t send them a 1099-MISC. Of course, if you don’t have a W-9 for a vendor, but the business has an Inc., Corp., or Corporation in its name, chances are high that they are a corporation and don’t need a 1099-MISC.

On the other hand, if someone refuses to fill out a W-9, you are supposed to presume they are subject to the reporting requirement and issue them a 1099-MISC to be safe.

If you have issued a 1099-MISC in error or with incorrect information on it, you need to send out a corrected 1099-MISC. You do this by issuing another 1099-MISC, mark it as “corrected” and file a Form 1096 with the IRS.

Not So Fine

What if you don’t bother sending out 1099s or you don’t send them out in time? If you file within 30 days after the Jan. 31 due date, you risk a $30 penalty per 1099-MISC. The penalty then jumps to $60 per 1099-MISC if you file late but before Aug. 1. If you don’t file at all, or file after Aug. 1, the penalty is $100 per 1099-MISC.

However, if you can show that the filing error was unintentional or due to a reasonable cause, you may be able to have the penalties waived. But be cautious; there is also a minimum penalty of $250 for each failure to file due to intentional disregard of the law. —D.S. Berenson is the Washington, D.C., managing partner of Berenson LLP, a national law firm specializing in the home improvement industry.

This article is for informational purposes only and should not be construed as legal advice.

More REMODELING articles about classifying employees and 1099s:

Contractor or Employee? For the IRS, all workers are not created equal

In the Cross Hairs — The target: improper classification of workers

Your Number’s Up — Audit risks grow with increased federal focus on 1099 labor

$100 Penalty per 1099-MISC if you file after Aug. 1 or if you don’t file at all