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Blogging Beyond the Numbers

What Your Cooperative Needs To Know About 1099 Filing
Posted by: Bruce Mayer 6 months ago

The IRS requires reporting of certain 2018 payments on a Form 1099.  This needs to be completed, sent to the recipient, to the IRS and most likely to your home state by January 31, 2019.

A 1099 is only required for payments that are not paid by credit card.  There is a separate reporting system in place where the credit card processor reports all payments made on a 1099-K.  So do not issue a 1099 for credit card payments since this will result in double reporting.

A 1099 is also not required for payments to corporations.  These are businesses with “Inc.” after their name.  A 1099 is also not required for payments to a non-profit entity.  For other entities including individuals, partnerships, LLCs, and LLPs a 1099 is required.

Reporting on a 1099 is on the cash basis, with some limited exceptions some of which are noted below.

The correct way to gather the name, address, and Social Security Number (SSN) or Employer Identification Number (EIN) is with a form W-9. It is a best practice to obtain this from anyone that may need a 1099 from your co-op.  Many businesses will not issue a payment until one is completed.

If you make payments to a person or business not in the US you generally would use the W-8-BEN for individuals and the W-8-BEN-E for entities.  This helps verify if they need a 1099 at all.  Generally payments to a person or entity with no US connection or presence will not be reported on a 1099 since they generally will not be paying US taxes on the income.

The most common 1099 requirement is that payments of $600 or more for services must be reported on a 1099-MISC.  If a service is rendered in 2018 but you pay the invoice in 2019 the 1099-MISC will be issued for 2019.  When an invoice includes services and materials, such as an equipment repair, the 1099-MISC will generally report the entire invoice paid.

The 1099-PATR is required for patronage dividend payments of $10 or more. The amount reported is the cash paid plus the qualified notices issued in 2018.  If your co-op pays patronage dividends on purchases by individuals for personal use items, such as a grocery co-op owned by shoppers, you may fall under the personal use exemption from preparing a 1099-PATR.  There is a one-time form to file with the IRS to qualify for the exemption.  See the article on patronage dividends for more information on the exemption.

Other common payments for co-ops to report include the 1099-INT, 1099-DIV, and 1099-OID for payments of $10 or more.  For dividends this includes a dividend paid in additional shares.  The 1099-OID is for reporting original issue discount income.  This is for loans or notes that only pay interest at maturity.  In these cases you need to issue a 1099-OID to report the accrued interest each year.

There are significant penalties for each 1099 not filed starting at $50 for late filing to $530 for willful disregard of the filing requirement.

There are many nuances to this that were not be covered here, but we have looked at the basics.  If you think you have one of the unusual situations the IRS instructions for the 1099s can help: https://www.irs.gov/pub/irs-pdf/i1099gi.pdf.   Or you can contact us to assist with questions to assist with preparing 1099s.

 

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About the Author

Bruce Mayer

Bruce Mayer, MBA, CPA currently serves as a Partner in the Assurance Department, working primarily on audits and tax returns of cooperatives, nonprofits, employee benefit plans and commercial businesses.  Bruce performs audits of all kinds and provides consulting services on taxation of nonprofits and cooperatives.  Bruce enjoys helping clients solve problems and providing clients advice on accounting and tax strategies that meet their needs.


 

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