All businesses and organizations, including homeowner associations, are required file 1099 Forms, including Form 1099-MISC, when they make certain payments to others. The legal structure of your HOA (or condo association) does not matter. If it makes any payments that require filing Form 1099-MISC, it must do so or face a stinging array of possible penalties.
Form 1099-MISC reporting can be very complicated. This is why we created the course Form 1099-MISC Basics for Small Business, which includes HOAs. This article will briefly discuss some of the topics covered in this course, including the most common forms of payment HOAs make that require Form 1099-MISC; Rents and Nonemployee Compensation.
Rents: Rents are reported in Box 1 of Form 1099-MISC when your HOA pays rents of $600 or more during its tax year to any entity or individual required to receive Form 1099-MISC.
Rents include amounts paid for office space or other space, including land, rented for HOA use. If, however, you are paying the rent to a professional property manager, such as a real estate agent, you do not need to send them a 1099-MISC.
The rental of machinery or equipment rented for HOA use can also require Form 1099-MISC. Examples include rented pressure washers, office or lawn equipment, and rent paid to businesses or individuals for items used at a community event.
Nonemployee Compensation: The most common payment HOAs make that require the Filing of Form 1099-MISC are payments made for nonemployee compensation. Nonemployee compensation is payments made to individuals (who are not your HOA’s employees) and businesses for services. These amounts are reported in Box 7 of Form 1099-MISC and required when service payments to any individual or business equal or exceed $600 during the calendar year.
Since volunteer boards of directors operate the vast majority of HOAs, service payments that require form 1099-MISC are easy to overlook. If, however, you aware of the types of services requiring Form 1099-MISC before payments are made, complying with Form 1099-MISC rules will be less stressful. To help spark this awareness, here’s a list of typical HOA service payments that may require Form 1099-MISC:
1099-MISC Due Dates: The recipient copy of Form 1099-MISC (Copy B) should be mailed to them no later than January 31st of the year following payment. Generally, paper-filed Copy A’s of Form(s) 1099-MISC, are due to the IRS by February 28th of the reporting year. However, a recent rule change makes the IRS Copy A’s due date January 31st if any of the 1099s include nonemployee compensation in Box 7.
1099-MISC Complexities: As with most IRS reporting issues, Form 1099-MISC reporting rules are full of complexities that make compliance difficult without proper training. For example, your HOA is not required to send 1099-MISC to most businesses taxed as for-profit corporations. Also, if your HOA makes payments through the third party such as an outside management company, the management company, not your HOA, may be responsible for filing Form 1099-MISC.
Other complications include special rules for payments made by credit card, rental payments for equipment that include an operator, and payments for services that include the purchase of physical goods.
It is also essential that your HOA track the rent and nonemployee compensation paid to each business or individual during the year. Why? Because separate payments add up and Form 1099-MISC is required when TOTAL payments made to any business or individual are $600 or more.
Backup Penalties: Making these complexities even more harrowing is the fact that failure to obtain (or refusal of the payee to provide) the taxpayer identification number (TIN) of those required to receive a Form 1099-MISC may force your HOA to subtract and remit a portion of each payee’s payment to the IRS. This process is called backup-withholding, and the failure to collect and remit backup-withholding can result in a significant penalty, a penalty assessed on both the HOA and the individual making payment.
Inexpensive 1099-MISC Training: Overnight Accountant created Form 1099-MISC Basics Course to help HOAs and businesses avoid penalties related to Form 1099-MISC and backup-withholding. This course will help you understand the most common payments that require Form 1099-MISC. It also provides step-by-step instruction on how to complete and file Form 1099-MISC and guidance on how to avoid backup withholding and other penalties.
Inexpensive HOA Income Tax Training: Many HOA members are not aware of the fact that all HOAs are required to file an income tax return with the IRS every year, even if their only income is from member dues. The most common income tax form filed by HOAs is Form 1120-H, US Income Tax Return for Homeowner Associations. The good news is that Form 1120-H is a relatively easy form to prepare and why we created our Form 1120-H Basics Course - to help HOAs complete their income tax returns! Please click here to learn more about the course and HOAs qualified to take it.
Other Overnight Accountant HOA articles:
All courses and articles are for informational purposes only and do not constitute tax advice. Taxes are complicated - do not act on course information without consulting a professional. Always refer to treasury regulation before making any tax decision. Read the full disclaimer.
This course package is thorough and will give you a solid handle on how to optimize your business expenses to minimize your taxes and keep appropriate records to handle any IRS challenges. Only want to dive into a particular topic? Jump to that video and scan forward to where your issue is addressed. Or watch the whole series to learn it all!- Josh, Charles Town, WV, Real Estate Agent Tax-Cut Library, Agent Edition Course
Your video class on this issue (HOA taxes) has given me the confidence to go forward.- Desmond, Frederick, MD, 1120-H Basics Course
I thought the course on 1120-h was excellent and have shared your website with other hoa board members. It was clear to me that Brett understood a volunteer HOA board that could not afford tax accountant guidance.- Terri S, Henrico, VA, 1120-H Basics Course
Thanks for offering Overnight Accountant!- Josh, Charles Town, WV, 1099-MISC Basics Course
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