March 14, 2017
By Salvatore J. Armao, CPA/PFS, CFP, CFE, CGMA
This is the third in a series on proper tax reporting for labor unions. As tax time nears, labor unions need to know about circumstances in which they may make common errors in tax reporting. This article will focus on 1099 forms.
The general rule is that organizations must issue a Form 1099-MISC to each vendor or independent contractor who has been paid $600 or more for rents, services (including parts and materials), prizes and awards, or other income payments.
Form 1099 must be provided to any individual, partnership, Limited Liability Company (LLC), Limited Partnership (LP), or Estate.
Form 1099 is not required for vendors operating as S or C-Corporations or for payments of rent to or through real estate agents (typically property managers). However, keep in mind organizations need to issue a 1099 to a landlord for payment of rent, unless the landlord meets another exception.
Additionally, the IRS allows taxpayers to exclude from Form 1099-MISC any payments made by credit card, debit card, gift card, or third-party payment network such as PayPal. (These payments are being reported by the card issuers and third-party payment networks on Form 1099-K.)
All attorneys, even if ‘incorporated’, must be provided with a Form 1099 if they were paid more than $600.
Labor Organizations should request a W-9 from any vendor that is expected to be paid more than $600 before you pay them. Using this as a normal business practice will provide the vendor’s mailing information, Tax ID number, and also require them to indicate if they are a corporation or not (saving you the headache of sending them a 1099).
Taxpayers are required to issue and mail out all Form 1099s to vendors and independent contractors by January 31st. Organizations have to compile all 1099s and submit them to the IRS with a Form 1096 Transmittal by the end of February.
The penalties for not doing so can vary from $30 to $100 per form ($1.5 million for the year), depending on how long past the deadline the form is issued. If an organization intentionally disregards the requirement to provide a correct payee statement, it is subject to a minimum penalty of $250 per statement, with no maximum. As you can see, the penalties can quickly add up.
Strike Benefits and Form 1099-Misc.
Box 7. Shows nonemployee compensation. If you are in the trade or business of catching fish, box 7 may show cash you received for the sale of fish. If the amount in this box is SE income, report it on Schedule C or F (Form 1040), and complete Schedule SE (Form 1040). You received this form instead of Form W-2 because the payer did not consider you an employee and did not withhold income tax or social security and Medicare tax. If you believe you are an employee and cannot get the payer to correct this form, report the amount from box 7 on Form 1040, line 7 (or Form 1040NR, line 8). You must also complete Form 8919 and attach it to your return. If you are not an employee but the amount in this box is not SE income (for example, it is income from a sporadic activity or a hobby), report it on Form 1040, line 21 (or Form 1040NR, line 21).
Strike benefits should be reported in Box 3 of Form 1099-Misc.
Box 3. Generally, report this amount on the “Other income” line of Form 1040 (or Form 1040NR) and identify the payment. The amount shown may be payments received as the beneficiary of a deceased employee, prizes, awards, taxable damages, Indian gaming profits, or other taxable income. See Pub. 525. If it is trade or business income, report this amount on Schedule C or F (Form 1040).
If reported in Box 7, it is subject to Self Employment Tax (Social Security and Medicare Tax). If reported in Box 3 it is simply Other Income not subject to SS or Medicare taxes.