The IRS requires that you file information returns (1099’s) for cash and check payments issued by your trade or business to individuals not treated as your employees as well as non-incorporated entities. The IRS strictly enforces the requirements and aggressively audits this area of the law; additionally, there are numerous penalties that may be assessed if you fail to comply. We recommend that PRIOR to making payments for services, you obtain taxpayer identification (ID) numbers from all of your service vendors. If they don’t provide you a SSN or IRS business ID number (EIN), you are required to withhold taxes on payments to that vendor. A 1099 form must be filled in if:

Amount Requiring Reporting

Contract Labor, Commissions, Director Fees and
Other Non-employee Compensation                                                      $600 or more

Dividends, Interest and Royalties                                                            $10 or more

Professional Fees                                                                                     $600 or more

Rents (other than to real estate agents)                                                  $600 or more

Attorneys Fees for legal services                                                            $600 or more

Payments to attorneys for settlements                                                        ALL


California law also requires business owners to report to the state’s Independent Contractor Registry certain individuals who perform services and you pay or will pay $600 or more. Using the Form DE 542, you must submit the individual’s name, address, and taxpayer ID number to the Employment Development Department within 20 days of making a payment of $600 or more, or entering into a contract for $600 or more in a calendar year.

If you have any questions regarding preparing the 1099 forms or independent contractor disclosures on the Form DE 542, please contact your Linkenheimer CPA for guidance.