Did you manage a rental property in 2023? Did you pay people who were not your employees to perform services related to the property?
If you answered “yes,” it may be time to get ready for 1099 Forms. Here’s the scoop…
1099 Forms serve as records of income equal to $600 and over that hasn’t been taxed by the IRS. Annually, a person or organization that pays non-employee income of $600 and over must issue the appropriate 1099 Form to the payment recipient, as well as the IRS. For housing authorities, 1099 filings generally include payments made to property owners, attorneys, vendors, and contractors. Failing to send a Form 1099 when required can result in penalties for the housing authority and potential loss of deductions for the property owner. In turn, Form 1099 recipients must include the forms with their annual tax filings and reflect income when required; otherwise, they can be subject to an audit and/or financial penalties.
There are numerous 1099 forms, but two are particularly important for housing authorities: 1099-MISC and 1099-NEC.
1099-MISC is used to report income that isn’t reported on a W-2. This includes:
- Rental income, including rent from tenants on a government housing assistance plan like Section 8 or a similar program (for HUD housing, the local housing authority will file the 1099-MISC unless there’s a property manager – in that case, the property manager files the 1099-MISC)
- Prizes and awards
- Cash paid from a notional principal contract to an individual, partnership, or estate
- Fishing boat proceeds
- Medical and health care payments
- Crop insurance proceeds
- Payments to an attorney
- Section 409A deferrals
- Non-qualified deferred compensation
- Other income payments
Of the items above, rent and payments to an attorney likely apply for a housing authority. An authority will use 1099-MISC to report rent totaling $600 or more paid to an owner of a rental property and a separate 1099-MISC to report attorney fees totaling $600 or more.
What about payments to independent contractors and such?
The 1099-NEC form is used to report non-employee compensation totaling $600 or more for a service provided as part of business (including to nonprofit organizations and government agencies). So, a housing authority will file a 1099-NEC for each independent contractor or organization paid $600 or more during the year for services provided on a rental property owner’s behalf. Examples include services provided by landscapers, electricians, plumbers, locksmiths, painters, maintenance workers, cleaning services, pest removal businesses, HVAC providers, bookkeeping/accounting providers, renovators, inspectors, and more. However, 1099-NEC forms are not required for payments made to corporations (unless the organization is also a limited liability company).
Up until November 21, there was a third reporting requirement using Form 1099-K to report payments received from cards, online payment apps and third-party payment networks. However, in a press release issued November 21, the IRS delayed this requirement for another year. The press release noted:
“Following feedback from taxpayers, tax professionals and payment processors and to reduce taxpayer confusion, the Internal Revenue Service today released Notice 2023-74PDF announcing a delay of the new $600 Form 1099-K reporting threshold for third party settlement organizations for calendar year 2023.
As the IRS continues to work to implement the new law, the agency will treat 2023 as an additional transition year. This will reduce the potential confusion caused by the distribution of an estimated 44 million Forms 1099-K sent to many taxpayers who wouldn’t expect one and may not have a tax obligation. As a result, reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023.”
Filing Deadlines
1099-NEC Forms must be filed by January 31 with both the IRS and recipient. 1099-MISC with no data in Boxes 8 or 10 is due to recipients January 31 and the IRS by February 28 (paper) or March 31 (electronic).
New Electronic Filing Requirement Starts in 2024
In February of this year, the IRS expanded electronic filing requirements. If an employer files 10 or more returns of any type – including W-2s and 1099s – on or after January 1, 2024, they must be submitted electronically. Paper submissions are not allowed. The IRS Information Returns Intake System (IRIS) portal or Filing Information Returns Electronically (FIRE) can be used for electronic 1099 filings (NOTE: You must apply in advance to obtain a Transmitter Control Code (TCC) to use IRIS or FIRE). As an alternative, you can ask your accountant to file for you. Failing to comply can result in a $310 penalty for each information return filed on paper.
For more information, please refer to the IRS website or give your RBT CPA client manager a call. We’re here to answer your questions and help with all of your accounting, tax, audit, and advisory needs. Give us a call today.
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