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Forms 1099-NEC and W-9 explained (with cheat sheet) | 8 minutes - YouTube
Channel: 5 Minute Bookkeeping
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Hi, I'm Veronica Wasek and I empower
virtual bookkeeping pros to become
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confident professionals
and business owners.
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In this video, I'm going to explain to you
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Form 1099- NEC and Form W-9 so that you
can tackle 1099 season with confidence.
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Let's get started.
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Let's start by taking a look at form
1099-NEC for Non-Employee compensation.
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Non-employee compensation
is reported in Box 1.
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Let's take a look at what should be
reported for non-employee compensation.
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The first thing we need to report
for non-eemployee compensation is services
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performed by someone who's not your
employee, including parts and materials.
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I've linked a handout for you
in the description where you can take
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a look at the links that I have provided
for you to the IRS instructions.
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On page 7 of those instructions,
it tells us that services performed
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by someone who's not your employee
includes parts and materials.
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It also tells us that non employee
compensation of $600 and more should be
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reported, including fees, commissions,
prizes and awards for services performed
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as a non employee and other forms
of compensation for services performed
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for your trade or business
by an individual who's not your employee.
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And that's on page ten
of the IRS 1099 instructions.
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Keep in mind also that there are
exceptions for corporations such as
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C Corps, S corps, and LLCs
taxed as C corp or S corp.
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You also need to report payments
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to an attorney in Box 1 as well,
whether they're corporations or not.
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I put together for you a quick
cheat sheet for the NEC form.
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You report non-employee compensation
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for services and payments
greater than or equal to $600.
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You will send 1099's to sole proprietors,
LLCs and partnerships.
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You'll also send them to attorneys
for payments made for professional
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services, even if they're
set up as a Corporation.
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And you will also send 1099 for payments
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made via cash checks, wires, ACH, and, in
particular, Venmo for personal accounts.
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But you don't send 1099's to C corps or S
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corporations or sole proprietors
taxed as S corporations.
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You also don't send 1099s for payments
made via credit cards, debit cards,
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gift cards and payments made
via third party networks.
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What are third party networks?
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Those are payments made via PayPal,
merchant services such as credit cards,
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Venmo for business accounts,
and other such services.
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Third party payment networks are
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responsible for issuing
the 1099-K form to recipients.
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For 2021, third party networks
have to follow specific rules.
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The 1099-K rules state that third party
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networks need to send 1099-Ks
for transactions that exceed or equal
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$20,000 and exceed or
equal 200 transactions.
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However, for 2022, the 1099-K rules have
changed and third party networks need
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to send 1099-K's for for transactions
that are greater than or equal to $600.
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Take a look at the description below so
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you can download the handout and read
more about third party networks.
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Now let's take a look at the W-9 form.
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I provided for you in the handout the link
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to download Form W-9. A as a best
practice, you should obtain a W-9form
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from every vendor, whether they're
providing products or services.
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However, as a minimum requirement,
I would highly encourage you to obtain
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W-9e forms from all non-
employees who provide services.
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I provided for you in the handout a couple
of links for you to take a look at some
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services that will help you to automate
requesting W-9 forms from vendors. One is
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W-9 Manager, and the other
one is Track 1099.
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Now let's take a look at Form W-9.
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This is the form that you need to submit
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to all of your vendors,
but at a very minimum,
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you need to request a W-9 form for all
non-employees who provide services to you.
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I've highlighted for you all of the fields
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that they should be filling out,
such as their name. Notice that this
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should be the name as shown
on their income tax return.
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Either the individual name or
the business name needs to go on box 1.
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In box 2, they would need to enter
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a business name or disregarded entity
name if it's different from above.
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In many cases, you'll see, for example,
the name is John Doe, and in box 2,
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it may be that they're doing business as
John's Marketing Services, for example.
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In box 3, they'll need to check
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the appropriate box for their
federal tax classification.
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So whether they're an individual,
sole proprietor or single member LLC,
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C Corporation, S Corporation,
partnership, etc.
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As well as whether they're set up as
a limited liability company or an LLC
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taxed as either C Corp,
S corp or partnership.
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Then there's their address, city,
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state and Zip code, Social Security
number or employer identification number.
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And you must have this information.
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And then they'll need to sign
the form and date it.
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Let's take a look at how
to review the W-9 form.
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How do we determine whether a vendor
is eligible to receive form 1099 NEC?
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Let's take a look at the sample form.
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We have Jane Smith doing business
as Designs by Jane Smith.
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If Jane fills out the form and indicates
that she is an individual sole proprietor,
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or a single member LLC,
or the business is a partnership or trust
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and estate,
or an LLC taxed as a partnership,
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then Jane is eligible
to receive form 1099 NEC.
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Keep in mind also that in order
to determine whether Jane should receive
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form 1099 NEC, you must follow
the criteria that I mentioned earlier.
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So, for example,
if Jane is eligible to receive form 1099-
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NEC, but you only paid her, say $300,
she's not eligible to receive form 1099
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because she did meet the criteria
of being paid $600 or more.
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Now let's take a look at another example.
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Now we have Jane Smith Corporation. I
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f Jane Smith Corporation fills out the box
for being set up as a C Corporation,
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S Corporation,
or an LLC taxed as a C Corporation or
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S Corporation, then Jane Smith Corporation
is not eligible to receive a 1099 NEC.
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But there is an exception.
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Attorneys are eligible to receive
Form 1099 even if they are set up or taxed
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as corporations - whether it's
a C corporation or an S corporation.
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So that was my quick explanation
of form 1099 and Form W-9e.
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Let me know in the comments if you have
any questions or if there are any tips
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and tricks that you have
for filing your 1099 forms.
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I'm Veronica Wasek. If this content is
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helping you, then subscribe to my channel,
ring the Bell, and give me a thumbs up.
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Check the description below to get
the free handout that I mentioned
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in the video, as well as links to my free
resources, including the free
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Virtual Bookkeeper's Toolbox and the link
to join my Facebook community.
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I'll see you next time
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you.
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