The last weeks of the year for many people in a law firm can be a bit slow and give them a bit of time to catch up, as attorneys take vacations and courts are closed for the holidays. For those in accounting however, it is anything but leisurely. End-of Year brings on a slew of deadlines, as they close out the books for the year and prepare to send out the required IRS forms. One of which is the 1099.
Deadlines and Forms
Protocol demands that 1099 forms be sent each year by January 31, or If January 31 does not fall on a business day, the due date will be moved to the next business day. In 2020 the IRS introduced Form 1099-NEC (Non-employment compensation), specifically for reporting independent contractor income. Prior to this, most contracted workers were sent the 1099 MISC which is still in use. Make sure you send the right form.
For law firms, the majority of 1099s sent will now fall under the 1099-NEC and must be sent to those meeting the criteria:
- Not a corporate entity. Note: LLCs are not considered corporate entities for this purpose. Paid over $600. Note: You should not include payments made by credit card.
- While the 1099-NEC will be the most common, you may still need to issue the 1099-MISC (Miscellaneous). These are still used for a number of categories of payments.
For law firms the most common are at least $600 in:
- Payments to an attorney
You can simplify the process by making sure that you collect the appropriate information from vendors prior to issuing payments. All vendors should be asked to submit a W-9. The current W-9 form can be obtained at https://www.irs.gov/pub/irs-pdf/fw9.pdf.
Keeping Track of Who to Send a 1099
Most accounting systems have fields for recording the Tax ID and eligibility for 1099 for vendors. The system should then track the amounts paid to the vendor. Some accounting systems will create a report or print the 1099s and other systems will only create a report. The report can be used to upload for electronic filing or creating your forms. You should check that payments by credit card have been excluded. You will also need to make sure you include vendors paid from both operating and trust accounts.
Sending out 1099s
1099s can be printed directly onto forms purchased from an office supplies store. You can also order from directly from the IRS but these are usually better for typing on than for running through a printer. If you are printing forms to send into the IRS, you will also need to create a 1096 cover page, so make sure you get that as well. With printed forms, there are multiple copies created for the IRS, the state (if needed), the recipient, and your files. If you have a large quantity of 1099s, you must file electronically.
For smaller amounts of 1099s you may want the convenience of filing electronically and can do so. There are several companies that can do this for you with a simple CSV file upload, or you can create your own file and upload it to the IRS. If you need to file with the state as well as the IRS, make sure you do so. Not all states require 1099 filing and, of those that do, some states use the IRS file and some do not, so check your requirements.
There are penalties to the firm for not issuing 1099s so make sure you get the information from your vendors and get your 1099s issued on time. You can find more information at the IRS web site.