Your accountant could be overcharging for your 1099-MISC forms and you don’t even know it.
Your accountant should never be charging you to file 1099-MISC forms for certain scenarios.
If your employees are not represented correctly when filing taxes, the IRS may issue no-match letters in the future. The misrepresentation could simply be information not matching up correctly or sending the incorrect forms. If you don’t send forms at all or send them past the deadline, you could also face steep penalties.
The very basic rule for distributing 1099-MISC forms is for any non-employee to whom you pay more than $600 throughout a tax year, you are required to deliver them a 1099-MISC.
Any errors that cause the IRS to question where and when income was reported can delay the tax process. This means that misclassifying employees or independent contractors could lead to penalties and delays, so you may want to take a closer look at how you’re paying employees to ensure that you’re reporting their income correctly.
How are third-party app transactions reported?
With the introduction of third-party money transfer apps, the landscape becomes a little more confusing in terms of understanding when a 1099-MISC is required. Third-party processors complete payments via the same clearinghouse system as credit and debit card transactions, so cash-transfer apps are not considered third-party processors.
You might be familiar with:
- Square Cash
In this case, 1099-MISC forms must be filed when you’re using cash transfer apps.
Money transfer services are intended for personal use, which is different from a merchant service intended for doing business. This means that a money transfer app doesn’t send out tax information as a third-party processor does. So when using these types of apps to pay for business services, you do need to send a 1099-MISC (if the income reported is over $600).
If you use third-party vendors to pay contractors, keep reading.
In 2011, the IRS made changes to the requirements for employers that used credit cards or third-party payment processors to make payments to contractors. After that change, those types of payments now no longer require a 1099-MISC.
A 1099-K form is now issued from those third-party payment processors themselves. So if your payments are made to contractors via credit card or PayPal, a 1099-MISC should not be issued to those freelancers or contractors. In short, if you’re using a third-party processor that collects tax information, don’t do the extra work, because it will confuse the IRS who will see income that doesn’t exist.
Once you’re ready to file your forms, eFile360 provides convenient e-filing services that ensure your taxes are filed on-time and correctly, as well as services like TIN Checking (to ensure that all your information matches up and you don’t face future delays or penalties). Find out more about 1099 filing penalties here.
eFile360 can’t specifically provide accounting assistance, but our dedicated customer service team is available to chat to understand which of our services best fit your needs.