2011 Changes to 1099 Reporting Requirements

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We’re watching this issue closely for you in case there are new developments, but as of now you need to be carefully track all payments made in the course of doing business. If things stay as they are, you may be required to file a lot more 1099s and other informational returns for 2011.

1099s Required for Payments to Corporations

Some of the changes are coming from §9006 of the Affordable Care Act, and where previously you were only required to provide 1099s to individuals and sole proprietorships, the requirement now includes payments to corporations. This means that as of right now corporations are no longer exempted from the 1099 filing requirement. To recap: previously, businesses were not required to file an information return if the payments (in excess of $600) were made to a corporation. Unless things change, you will now be required to provide a 1099 (and of course a copy to the IRS) even if the payments were made to corporations.

Landlords Now Required to File 1099s

Another important change affects landlords. Thanks to §2101 of the Small Business Act, landlords are now considered to be “in a trade or business,” which means that they will also be required to file 1099s for payments made in the course of conducting their property rental business. There are 3 exceptions. You will not be required to file 1099s:

  • If all of your rental income is earned while you are renting your primary residence on a temporary basis
  • If you receive “rental income of not more than the minimum amount”
  • If complying with these reporting requirements would “cause a hardship”

The first exception is pretty clear, of course.

The last 2… well, they may be subject to interpretation. Unfortunately, it’s the IRS interpretation that is ultimately going to matter. So, if you are engaged in renting property, you must keep records and prepare to provide 1099s to any service provider to whom you make payments of $600 or more in 2011.

What to do right now – print a blank W-9 from www.irs.gov, just type W-9 in the top right hand search engine.  Complete the form for every company that you do business with.  O.K., that’s a bit much.  Start with companies you have recurring business with or if you write one check for $600.00 or more.

Again… we’ll do our best to keep you posted here if things change — and there already some rumblings in Congress that may eliminate this requirements. But for now, it’s better to prepare and be safe than sorry. The penalty for not filing a required information return (such as a 1099) is $100 per return. That adds up very quickly… particularly if you are renting property and were not previously required to file these returns and got to the end of the year without realizing that you needed to be paying attention to this.

Credit Card Payments

One possible way to avoid some headaches with 1099 and other information returns is to make your payments via credit card or third party payment network when possible.

The reason is that banks and merchant service providers will now be required to report merchants’ gross receipts to the IRS automatically. Since this is occurring, you (as a payor) will not be required to file a 1099 for payments made via credit card or a system such as PayPal.

As an aside… if you have a merchant account, this means that the IRS will be notified about your gross receipts unless you receive less than $20,000 or fewer than 200 merchant payments in 2011.

Jo Hagan, CPA
Jo Hagan, CPA
Jo Hagan is the visionary and founder behind Barefoot Accounting, Inc. She's been in private practice helping businesses like yours grow, understand their numbers, handle tax issues, and more for over 15 years. As a mom, wife, and business owner, Jo understands the struggles business owners and entrepreneurs face, and she has a passion for helping people understand what they need to know in order to be successful in business!

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