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Form 1099-NEC and Form 1099-MISC are critical tools the IRS uses to ensure compliance with U.S. Treasury Regulations.  They are information returns that tell the IRS, just like Form W-2, that the recipient has received income that should appear on their tax return.  If the recipient does not report the revenue, the IRS has good reason to believe they’ve understated income.  Information returns, like Form 1099-NEC and 1099-MISC, allow the IRS to send computer-generated tax bills to under-reporters.  Those receiving the bills must either pay or dispute them. They generally pay the amount due, plus interest and penalties.

Unfortunately, this highly effective check on taxpayers does not work when information returns don’t get filed.  It may be difficult for honest citizens to realize how crucial these returns are.  Many find it hard to grasp the fact that the significant cause of unpaid tax in the United States is small businesses and organizations not submitting Forms 1099-NEC and 1099-MISC.  

But, facts are facts.  Numerous studies by the IRS and General Accounting Office prove that individuals do not report taxable income when information returns do not get filed.  For a few, income not reporting income as an oversight. Others believe income is not taxed unless they receive a 1099.  Sadly, however, the most common reason for unpaid tax is as old as the cat and mouse.  When Forms 1099 do not get filed, taxpayers know they have an excellent chance of getting away with not reporting the income.  As the saying goes, when the cat is away, the worker-mouse commits fraud.

Tax fraud rooted in Form 1099 noncompliance is so common that Congress has doubled penalties twice in the past few years to encourage proper and timely 1099 filing.  For more information these penalties, read our article, Form 1099 Noncompliance (Can Literally Destroy Your Business).     

Unfortunately, record-high penalties have done little to reduce the confusion surrounding Form 1099-NEC and 1099-MISC.  Take, for example, the seemingly simple question: Who is required to file these forms?  Surprisingly few organizations know they are required to submit Form 1099-NEC and 1099-MISC, let alone how and when to file them!   

That’s why we’ve drawn upon our Form 1099-NEC and 1099-MISC Training Course - to explain which businesses and organizations are required to process these forms. 

Sources of Confusion

There are two primary reasons for the confusion surrounding Form 1099-NEC and 1099-MISC reporting.   IRS instructions are the first culprit.  The second is rooted in the fact that individuals and entities that receive Form 1099-NEC and 1099-MISC are not the same as those required to file (prepare and send) them. 

IRS Form Instructions: The confusion surrounding IRS instructions is straightforward.  The instructions state, in a bold-type heading regarding who must file, that Form 1099-NEC and 1099-MISC reporting applies to “Trade or Business Reporting Only.”  Read this headline, and what do you think?  Organizations that are not in business have no filing requirement, right?  Unfortunately, this blatant, literal interpretation is incorrect.  If one reads a little further, there is a litany of non-business organizations considered trades or businesses for purposes of the 1099-NEC and 1099-MISC rules!  

Spoiler Alert: Read a bit more, and you’ll find exceptions to the exceptions of the IRS’s re-definition of a Trade or Business

Difference Between Those Receiving and Filing Form 1099-NEC and Form 1099-MISC: Another source of confusion impacting Form 1099 compliance is the difference between who must prepare and send the forms and those required to receive them.  We cover this difference in-depth in our Form 1099-NEC & Form 1099-MISC Training Course.  Clarifying this confusion is beyond the scope of this article but, the result is that many more businesses and organizations are required to file Form 1099-NEC and 1099-MISC than must receive them.

Below are two simple lists of who files Form 1099-NEC and Form 1099-MISC, and who does not.  

Who Must File Form 1099-NEC & Form 1099-MISC

 The quick answer: The vast majority of businesses and organizations are required to file 1099-NEC and 1099-MISC Forms when they make certain payments (generally $600 or more paid for services or rents during the year). Here’s a quick list:

  • Sole Proprietorships
  • Partnerships
  • S Corporations
  • C Corporations
  • LLCs
  • Federal Government
  • State Government
  • Local Government
  • Credit Unions
  • 501(c) Nonprofits & Associations
  • Church’s 
  • Homeowner Associations
  • Religious Associations 501(d)
  • Fraternal Organizations

Who is Not Required to File Form 1099-NEC and 1099-MISC

So many organizations are required to submit Form 1099-NEC and MISC, it might be easier to list those NOT required to File Form 1099-MISC. Here you go:

  • Personal households (be careful with individuals who may qualify as household employees)  
  • Payments related to hobbies
  • Most Rental Real Estate owned by individuals (not managers) not rising to the level of a business
  • Most estates not partaking in business

Hopefully, these lists clear up any confusion you may have had regarding your businesses or organization’s 1099-NEC or MISC reporting requirements.

Keep Learning:  Just realize that you should file Form 1099-NEC and 1099-MISC and want to make sure you do it correctly?  If so, check out Overnight Accountant’s Form 1099-NEC and 1099-MISC Training Course.  This course teaches everything you and your staff need to know.   Do you work in the realm of accounting, payables, and bookkeeping?  Our training course is also a tool you can use over and over as part of your employee development program.  The course includes a workbook, exam, and answer guide.  Even a frameable completion certificate for those who complete the course!  

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.

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