Filing for a company tax return or filing tax reports for vendors, contractors, and employees that have contributed their services and products to your company is one of the complexities of managing a company. Well, 1099-miscellaneous is one of the most-common tax forms. Typically, this form is issued to janitorial services, third-party accountant, and independent contractors.
But what will happen when your contractors or vendors companies are incorporated as an LLC? Do they actually receive the form 1099 for the LLC during their tax time? As a matter of fact, the rules of IRS for granting 1099 form are somewhat complicated. It helps in determining precisely what kind of LLC they are dealing with. So, if you are unsure about 1099 form, you don’t need to worry, this article will give you the brief description about 1099-miscellaneous form.
What is 1099-MISC Form?
1099-Form is a W-2 form for self-employment. It is an informational form that tells the government agencies and the IRS about the person named in the form who has received taxable payments through trade or business during a particular year.
As a general rule, you need to issue a Form 1099-Misc to each person to whom you have paid at least $600 in rents, prizes, and awards, other income payments or services (including materials and parts). Moreover, you are only required to issue 1099 Form only for the payments you have made in the course of your business or trade.
In fact, you don’t need to send 1099s form for the payments which is made for your personal purposes. Well, you’ll send this form to any Limited Liability Company, Limited Estate or Partnership, an individual, a partnership.
When does business proprietors required to file 1099-miscellaneous form for their contractors or independent contractors?
Internal Revenue Service Form 1099 is a statement of funds or other benefits paid to subcontractors, contractors, individuals, partnerships, an independent contractor or other businesses who have performed services for your company, or who is owed money via contract.
But if your contractors or vendors are sole proprietors or individual who doesn’t acquire any business structure; in that case, you need to issue 1099 misc-form with specific information required by the IRS for them which includes the name of the sole proprietor, and the social security number of the sole proprietor, which serves him as the tax identification number.
Along with the same lines, if you are dealing with the contractors or an independent contractors that are owning their company as LLC in that case, 1099-form becomes more complicated to understand. That’s why many business owners are unsure of the requirements for issuing 1099s to limited liability companies. In fact, there is no straightforward answer to this specific question -“Do an LLC’s companies receives form 1099 LLC during tax time?”
And the answer depends on how the IRS treats the LLC. For federal tax purposes, a limited liability company may be taxed as a sole proprietorship or as an individual, or it can be elected as a “disregarded entity” or Type D by IRS taxpayers. Moreover, if your contractors file taxes as a sole proprietorship LLC, then they will be considered as a Type-D or disregarded entity, and you have to file LLC 1099 form for them .
On the flip side, if you are working with contractors that are set up to do the business as an LLC and file their business return taxes as a C-corporation or S-Corporation. This means that they are classified as a corporation by the IRS taxpayers and generally do not have to receive LLC form 1099. But there are some exceptions which involves:
- Cash payments for fishes.
- Health Care and Medical payments.
- Fees or gross proceeds paid to the lawyers.
- Payment from a federal executive agency.
- Substitute payments in place of dividends or tax-exempt interest.
The Different ways to figure out whether your contractor’s LLC gets 1099 Form or Not?
Well, now you are having the profound idea in what situations you need to file 1900-MISC Form for your contractors. But the next question arises how do you find out whether your contractor’s LLC receives 1099 Form or not?
So, are you trying to figure out if your contractor receives LLC form 1900? In that case, ask your vendors or independent contractors to fill out an IRS Form W-9 in order to stay away from any legal system problems. As a matter of fact, the IRS designated form W-9 is well- known by the name of “Request for Taxpayer Identification Number.” Moreover, this form requests for the trade name, business name and for the taxpayer identification number.
More importantly, in order to figure out whether your contractors receives form 1900 LLC or not, they have to mark the different boxes showing how their company is set up for tax schemes- Whether it is an individual or sole proprietor, S-Corporation, C-Corporation, LLC. When an independent contractor checks the box which is marked as an Individual or sole proprietor, the company is regarded as disregarded entity and you need to send 1099-MISC form for them.
And if the contractor checks any of the box stating that they do business as an LLC, then, they must also mark a box on the Form W-9 to show whether the LLC is taxed as a partnership or corporation (S- Corporation or C- Corporation),and you do not need to send 1099- MISC Form for this contractor.
In short, you will need to send out a 1099-MISC form if you’re working with an LLC sole proprietorship and if the LLC files as a C-corporation or S- corporation, then no 1099 is required.
But if you are working with the independent contractors, then you need to prepare 1900-Form for each independent contractor that was paid over $600 in a given year. And there are five-carbon copy forms for each 1099-MISC that you make for each contractor. They are as follows:
- Copy 1 – State Tax Department Copy
- Copy 2 – For a recipient to file with State Tax Return.
- Copy A – You will send this copy to the IRS along with Form 1096
- Copy B – Copy for the recipient (independent contractor) to keep for their records.
- Copy C – Copy for you to keep as the payor.
What happens if you file 1099 for your contractor’s LLC when they don’t require?
Sometimes an independent contractor might forget to file a W-9 in time or check the wrong box on their W-9 Form, so if you are still unsure whether your contractors receive 1099 Form or not? It’s always advisable to send out 1099-MISC Form for them. Even if the contractor’s does not require the form 1900 LLC, you were supposed to send it to the IRS with complete documentation. Due to this, you will not have to pay the hefty penalties for 1099 forms. However, if your contractors were supposed to get form 1099 LLC and you did not submit due to some reasons,in that case, you will be at risk and you have to pay hefty penalties of $100 to the IRS.
Penalties for filing late for 1099-MISC Form
Well, if you have send 1099-MISC Form for your contractors, but somehow you were late for filing it and cannot be able to show the reasonable cause, in that case, you may be subject to a penalty, and it may come into play if:
- When you have filed on paper instead of electronically.
- You don’t report a TIN.
- You don’t provide all information required to be shown on a 1099 return
- You include incorrect information on the return.
- You file paper 1099 forms that are not readable by machines.
- You don’t get the forms to the recipient on time.
So, now you must be querying about the penalty amount. Well, 1099 deadline penalties are based on when you file the correct information return to the IRS taxpayers. Moreover, the penalty is capped at $187,500 for small businesses, and at $536,000 per year for larger companies.
However, if you submit copies of 1099s late with the IRS, but within 30 days of the due date, then the IRS announces $50 as a penalty for submitting 1099 form late. And if you correctly file after the due date, but by 1st of August, you have to pay $100 per return. Moreover, $260 per return ($1,064,000* maximum) if you file after 1st of August or you do not file required information returns.
By now, you should have the pretty knowledge about 1099- Misc Form and more importantly, do LLC’s receive 1099-Form during the tax time or not? Hence it is always advisable to be on the safer side so as to curb the problems in the future.
So, ensure that you make the right choice that would help you and your company as you set up your business for the long-term basis. And if you have still not yet incorporated your company and need some help with it, IncParadise can assist you by offering exquisite services at reasonable prices!