Brady and Associates, LLC

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1099 Reporting Requirements

1099 Miscellaneous

Beginning in 2012, there is a significant change to 1099 reporting structure.  This change was included as part of the Patient Protection and Affordable Care Act.  The IRS believes that it currently loses more than $300 billion each year in tax revenue on income that goes unreported.

The change involves payments of $600 or more.  Under the law, businesses will be required to send a 1099 to other businesses for nearly every type of purchase that exceeds the minimum $600 threshold. You can expect to receive 1099-misc forms from every organization where your annual purchases exceed the minimum amount.  The change now includes purchases from major chains like Staples and Office Depot for office equipment, computers, and virtually any other type of purchase.

Under the existing law, businesses are required to use Form 1099 to report excess payments for rent, interest, dividends and non-employee services to all entities that are not corporations. Payments made to corporations are not required to be reported. The new law will require corporations to begin participating in this process.

Rental Provisions

Under the provision, owners of property who receive rental income will be required to issue Forms 1099 to service providers for payments of $600 or more during the year.  Recipients of rental income from real estate are held to the same information-reporting requirements as taxpayers engaged in a trade or business. Thus, rental income recipients making payments of $600 or more to a service provider in the course of earning rental income are required to provide an information return (typically, Form 1099-MISC, Miscellaneous Income) to the IRS and to the service provider. This provision will apply to payments made after Dec. 31, 2010, and will cover, for example, payments made to plumbers, painters or accountants in the course of earning the rental income.

 

Credit Card and Pay Pal Payments

Additionally, a separate piece of legislation involving 1099's was passed as part of the Housing Assistance Tax Act signed by George W. Bush in July 2008. 

Credit card processors will also be required to document the year's transactions. Starting in 2011 PayPal will be required to report annual transactions via online or credit card payments when they exceed 200 transactions or $20,000 (gross) before they report. Gross amount is defined by the IRS as the "total dollar amount of aggregate reportable payment transactions for each participating payee without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts or any other amounts". When that volume is exceeded, sellers will be required to provide TIN  to payment processors like PayPal and then report that amount to the IRS on Form 1099-k. The 1099-k is currently in draft form and will be introduced for the 2011 tax year. To learn more, you can read PayPal's revised User Agreement.