This article appears in the October 2020 issue of the
PE GI Journal
How preparation makes 1099 reporting for vendor payments run smoother
Every January, the IRS requires all companies, including GI practices and ambulatory surgery centers (ASCs), to report certain types of vendor payments that were made in the company’s course of business. Reporting is accomplished by filing either IRS Form 1099-MISC or (starting with the 2021 filing season for the 2020 year) new IRS Form 1099-NEC (non-employee compensation). The process includes providing the proper 1099 form to the vendor, as well as filing the 1099 forms with the IRS by January 31 for the previous year. The IRS facilitates this process by requiring companies to collect a completed IRS form W-9 from each vendor when the company starts doing business with that vendor.
How and When to Prepare
Although 1099-MISC and 1099-NEC forms are not due for distribution to the vendor or filing with the IRS until the end of January, fall is the best time to start preparing for the upcoming deadline. Here are some suggested activities to perform in the fall. These will ensure you have accurate vendor information as you approach the filing deadline:
- Review your vendors and determine that you have a W-9 on file for each one.
- Verify that every W-9 includes the vendor’s name (as shown on their income tax return), their Tax ID Number, and their federal tax classification.
- Confirm that you have a current address for each vendor.
- Ensure that you have updated all the above information into your accounting software, since most software systems have a function to help print the 1099 forms.
TIP: Collecting W-9s should be part of your new vendor approval or onboarding process throughout the year. This will minimize the need to go back to vendors and gather this data during the filing process.
Choosing the Right Form
Next, you need to determine which vendor payments require a 1099 form and which 1099 form to use—1099-MISC or 1099-NEC. GI practices and ASCs previously used form 1099-MISC box 7 to report non-employee-compensation that met the following criteria. Starting in reporting year 2021 (for payments made in 2020), those payments are now reported on the new 1099-NEC. If the following conditions are met, the vendor payment should be reported on 1099-NEC:
- Payment is made for services in the course of your trade or business.
- Payments for the year are at least $600.
- Payment is to a vendor that is not your employee.
- Payment is made to a vendor with the following tax classifications: individual/sole-proprietor or single-member LLC, partnership, trust/estate. Note: All legal services over $600 should be reported regardless of tax classification (i.e., C-corporations and S-corporations would also be reported for legal services paid).
GI practices and ASCs will still use 1099-MISCs to report the following vendor payments:
- Payments for rent from vendors whose tax identification status is either a partnership or individual that total $600 or more. (1099-MISC box 1)
- Payments for medical services regardless of the vendor’s tax identification status that total $600 or more. For example, if you use an outside company to provide anesthesia services. (1099-MISC box 6)
Further Guidance on 1099 Reporting
The IRS provides instructions and guidelines to assist with the annual filing requirements. You can find those instructions, as well as the IRS forms mentioned in this article, at irs.gov/forms-instructions. You should consult your accountant if you have specific questions about your business transactions and filings.
Remember, a little prep work every fall will simplify your reporting process each January. Additionally, it will make for a smoother transition this year to the new 1099-NEC form for 2021 reporting.
Have other tax or administrative questions? PE GI Solutions can help. Find us at pegisolutions.com.
Kelly Smola is a Tax Manager at PE GI Solutions. She can be reached at email@example.com.