What’s a 1099? Do I Need to File?

In 1917, the United States was in the midst of World War I. The government wanted to increase revenues to fund the war, so Congress passed the War Revenue Act of 1917. It created several provisions, but one was the requirement that businesses start reporting payments made to other businesses. This reporting requirement created 1099s. It stated that if payments of $800 or more were made, it was to be reported to the Internal Revenue Service (IRS) [1,2]. In this article, we will review how this affects farm businesses.

Today the requirements are roughly the same, but the threshold is $600. The threshold is the total of all qualified business payments made.  So, two payments of $400 for rent ($800 total) to the same recipient would qualify. Further, $400 for rent and $200 for services ($600 total) to the same recipient would also qualify. It is important to note this is only on payments made from one business to another. Payments made for personal purposes do not have this reporting requirement. For example, contracting someone to paint your personal residence (not required) vs. contracting someone to paint the barn for your farm business (required). Most often in agriculture, payments for rent and services are what create 1099 filing requirements. Payments for physical goods and payments to corporations (C or S) are typically exempt from these reporting requirements (with a few exceptions). If the business had payments during the year exceeding the threshold, it is a good idea to investigate whether a 1099 needs to be filed. Oftentimes, recordkeeping software or your accountant can make you aware of these situations.

It is common that a farm operator may receive and issue 1099s. Receiving a 1099 indicates you were paid amounts during the year that required a 1099 to be issued. Ideally, this will coincide with what has already been recorded through the books and records of the business. For the operator or tax preparer, it is then a question of what the payment was for and how it should be reported for tax purposes. Receiving a 1099 does not necessarily mean that amount is taxable. It depends on the facts and circumstances relating to the payment. 

If a business is required to file 1099s, it is referred to as an informational return. The form itself does not remit any money to the recipient or the IRS; it is a summary of amounts that were paid during the year. Generally, there are going to be four copies of this form. (1) One sent to the recipient, (2) one sent to the IRS, (3) one sent to the state of the recipient*, and (4) one for your own business records. 

1099s must be sent to the recipient by either January 31st or February 15th, depending on the variation of the form. The IRS copy of the 1099-NEC must be sent by January 31st, and all other 1099s must be sent by either February 28th (paper) or March 31st (electronic) [3]. Due dates for states vary, but January 31st is common. Research individual states to find out their requirements and due dates. Penalties for late filing could be significant depending on the number of returns and the lateness of each.

Below are common (but not all) 1099 variants seen in agriculture:

For further reading visit the IRS [4] or RuralTax.org [5].

* Sometimes states will not require a 1099 or it will already be sent to the state from filing the federal form. It is important to review the individual state’s requirements to remain compliant. 

** Form 1099-MISC must be issued to a veterinarian even if the veterinarian is incorporated.

[1] https://www.history.com/this-day-in-history/war-revenue-act-passed-in-u-s

[2] https://www.givemeliberty.org/docs/TaxResearchCD/TaxActs/IncomeTax1917.pdf

[3] https://www.irs.gov/pub/irs-pdf/i1099gi.pdf

[4] https://www.irs.gov/forms-pubs/about-form-1099-misc

[5] https://extension.usu.edu/ruraltax/tax-topics/form-1099-information-returns

Author: Kevin Burkett

Extension Associate, Clemson University

kburke5@clemson.edu

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Author: Jerry Pierce

Program Coordinator, University of Kentucky

jerry.pierce@uky.edu