1099-MISC Reporting Requirements: Avoid Penalties

In 2011, the IRS enacted a new type of 1099 reporting form called a 1099-K for certain types of electronic payments.  The 1099-K is issued by third party payment processing companies such as credit/debit card processors, PayPal, etc. for payments to vendors and contractors. 

What does this mean to companies issuing 1099’s?

1099-MISC forms issued should include only payments made by cash, check, wire transfer, electronic check, ACH, online bill pay (bank to bank only), or direct deposit.  If your company made any payments to vendors using credit cards, debit cards, gift cards, or any other third-party payment network (such as PayPal) – those payments should NOT be included on 1099-MISC forms because the processing  companies are responsible for reporting those payments.   

What does this mean to companies issuing 1099-MISC?

Companies issuing 1099-MISC forms should confirm that only those payments made with the payment types mentioned above are reported on their 1099-MISC to the vendors.  For example, if the company paid a 1099 vendor $1,000 in 2015 and $400 of that was paid by credit card, then only $600 is reported on their 1099-MISC.  The additional $400 paid with the credit card is reported to the vendor on the 1099-K by the credit card processing company. 

Why should the payee care?

This reporting is mandated by the IRS and there are penalties to the Payor company for failure to report and incorrect reporting.  In the example above, the vendor’s 1099-MISC would be incorrect if the payor reported the entire $1,000 because the credit card company will be issuing a 1099-K for the portion it paid the vendor. 

How does QuickBooks help with reporting the correct 1099 information?

QuickBooks 2012 to 2016 automatically excludes from Form 1099-MISC any bill payments made using the credit card payment methods.  In addition, QuickBooks also recognizes and excludes from  the 1099-MISC any check payment containing one of the following notations in the check number field (limited to 8 characters):  Debit, Debitcar, DBT, DBT card, DCard, Visa, Masterc, MC, MCard, Chase, Discover, Diners, PayPal.  QuickBooks 2012 to 2016 also has a built in 1099 Wizard.

If you have QuickBooks 2009, 2010, or 2011, you have three options:

If you only have a few vendors that you paid with debit, credit or third party payers, you can manually search for and exclude the non-reportable payments.
If you have a lot of 1099 vendors you can purchase the downloadable QuickBooks 1099 Assistant App for $.99 to help you exclude the payments.  Or…
Upgrade your QuickBooks and take advantage of the updated 1099 Wizard. 

Where can I learn more?

Visit www.irs.gov and search for Treasury Decision 9496, 1099 for 2015.

You can also search within the Help of QuickBooks programs for Form 1099-MISC.