Do you send 1099 to foreign companies

I strongly encourage our business clients, nonprofit organizations and landlords to issue 1099 forms which are required by law. The reason is IRS Form 1099 provides the means of reporting very specific types of income from non-employment related sources that might not be reported elsewhere. If you paid someone for services (other than employees) you must issue them a 1099 by January 31 of the following year. Business income tax returns including IRS Forms 1120S and 1040, Schedule C include a question asking if Forms 1099 were filed as required and by signing your return, you are certifying that your response is true.

I recommend to all my clients to review all disbursements made from January 1, through December 31, summarizing all payments for services to unincorporated individuals and businesses where the accumulated total is $600 or more. If you pay a Limited Liability Company (LLC) that is taxed like a corporation you still have to issue a 1099 to that LLC. Make sure you have the correct name, employer identification or social security number and address of everyone you pay before you pay them.

Beyond having to possibly face an IRS or State audit, if you fail to file the correct information by the deadline, fail to include all the required information on a return, or if you include incorrect information, you can be subjected to an array of steep penalties if you cannot show reasonable cause. If the payee fails to furnish his or her taxpayer identification number (TIN), they are subject to backup withholding at a 28% rate. If you do not collect and pay backup withholding from affected payees as required, you may become liable for any uncollected amount.

Here are a few additional tips of when you do not have to issue 1099’s:

1. Do not send a 1099-MISC to an employee since that is what a W-2 is for. Remember that someone that performs services for you is either an employee or an independent contractor, but not both.

2. Do not send a 1099 to someone you’ve paid by credit card, debit card or by services like PayPal. Such payments will be reported on a 1099K that they will receive from their merchant services provider

3. Do not use Form 1099-MISC to report employee business expense reimbursements. Report payments made to employees under a non-accountable plan as wages on Form W-2.

4. If you pay a non-U.S. citizen who works remotely via the Internet from another country, you do not need to file a 1099 for that person. However, if the foreign worker performs any work inside the United States, you would need to file the 1099. For that purpose, you should have that foreign worker fill out, sign and return to you Form W-8BEN.

5. Do not issue 1099’s to corporations.

If you need help issuing 1099’s or have any questions, please contact Gregory J. Spadea at 610- 521-0604. The Law Offices of Spadea & Associates, LLC prepares tax returns year round.

If you pay independent contractors, you may have to file Form 1099-NEC, Nonemployee Compensation, to report payments for services performed for your trade or business. If the following four conditions are met, you must generally report a payment as nonemployee compensation.

You made the payment to someone who is not your employee;
You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations);
You made the payment to an individual, partnership, estate, or in some cases, a corporation; and
You made payments to the payee of at least $600 during the year.

Beginning with Tax Year 2020, you must use Form 1099-NEC, Nonemployee Compensation, to report payments of nonemployee compensation (NEC) previously reported in box 7 on Form 1099-MISC. The separate instructions for filers/issuers for Form 1099-NEC are available in the Instructions for Forms 1099-MISC and 1099-NEC.

If you file Forms 1099-NEC on paper you must submit them with Form 1096, Annual Summary and Transmittal of U.S. Information Returns. If you file more than one type of information return on paper -- for example, 1099-NEC, 1099-MISC, 1099-K, etc. -- you must prepare a separate Form 1096 for each type of information return. Form 1096 is not required for filing electronically.

Refer to Instructions for Forms 1099-MISC and 1099-NECPDF, General Instructions for Forms 1099, 1098, 5498, and W-2GPDF, and Publication 1220, Specifications for Filing Form 1098, 1099, 5498 and W-2G Magnetically or ElectronicallyPDF, for more information.

Nonemployee compensation paid to nonresident aliens is reported on Form 1042-S, Foreign Persons' U.S. Source Income Subject to Withholding. Withholding may be required on these payments. A Form 1042-T, Annual Summary and Transmittal of Forms 1042-S, is used to transmit paper Forms 1042-S to the Internal Revenue Service.

Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, must be filed if Form 1042-S is required. For more information on withholding on payments to nonresident aliens, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities and Publication 901, U.S. Tax Treaties.

Help with Electronic Filing is Available

Help with electronic filing is available to payers, transmitters, and employers, by calling Technical Services Operation (TSO). When you call you will be provided guidance on the technical aspects for electronic filing through the Filing Information Return Electronically (FIRE) System, general information on information return reporting, and referrals for self-help resources and tax law topics on IRS.gov.

Note: TSO does not provide assistance with line-by-line computations or highly complex tax issues. TSO does not provide legal opinions.

For assistance with your individual tax return, refer to the "Help" tab on the IRS.gov home page. For refund inquires please click on the "Refunds" tab on the IRS.gov home page.