Demetrius J. Karos, Ltd. Tax Representation From A Former IRS Employee

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When am I obligated to file a 1099 for payments I make?

Previous posts on this blog have talked about how businesses of all sizes in Illinois have an obligation to withhold federal and state payroll taxes from employees. They do not have to do so with respect to independent contractors who work for their business on occasion.

Businesses still have some legal obligations with respect to these independent contractors, however. Specifically, the employer must file what is called an informational return with the Internal Revenue Service, as the IRS still needs to know when and how people are being paid.

A business is supposed to file a 1099-MISC for all payments it makes to other service providers, assuming they are independent contractors. There are other occasions on which some type of 1099 will be required. There are a couple of exceptions to this rule. For one, if the business is making a payment to a corporate entity, then no 1099-MISC is necessary.

Likewise, no 1099 is necessary if the payment is to an individual, a sole proprietorship or a general partnership, if, and only if, the total number of payments in a tax year is less than $600. By way of example, a business need not provide a 1099 to a plumber who, on one occasion, comes in and fixes a leaky pipe for a couple hundred dollars.

While this requirement is fairly black-and-white and does not carry a huge potential for tax controversy, this doesn't mean issues never arise. It is important for businesses to do internal checks to make sure staff are fulfilling this requirement and doing so correctly.

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