Landlords, rental property owners, and property managers play a significant role in helping the IRS (Internal Revenue Service) monitor income that is generated from non-employment-related services. If this is your first time filing your taxes as a landlord, the topic of IRS Form 1099s may be a bit blurry. Below, we have compiled some of the most commonly asked questions concerning the IRS Form 1099.
What is the IRS Form 1099?
The IRS Form 1099 is an official record that is issued to entities who receive payments of at least $600. It reports the income generated during the year, specifically those not in the form of wages, tips, and salaries from a legal employer. Copies of Form 1099 are submitted to both the IRS and the payee.
The IRS uses 1099 forms to monitor income that is not reported on Form W-2. This means that the various 1099 forms are used to ensure that the income made outside of employment is properly recorded and taxed.
What are the Different Types of IRS Form 1099?
There are two dozen types of IRS Form 1099, but landlords, tenants, and property managers are mainly concerned with Form 1099-MISC, Form 1099-NEC, and Form W-9.
It is important to remember that each IRS Form 1099 has a specific purpose and does not necessarily have to be filed by the landlord. Oftentimes, the landlord is on the receiving end.
To illustrate, landlords should receive Form 1099-MISC from commercial tenants who pay more than $600 in rent per year. On the other hand, landlords should provide Form 1099-NEC to independent contractors (e.g. carpet cleaners, landscapers, etc.) whom they paid more than $600 for their services over the year.
Form 1099-NEC reports income from self-employment. The party making the payments is tasked to file this form with the IRS. For example, if a landlord hires a gardener to maintain his rental property’s landscaping all year round, the landlord must file Form 1099-NEC to report the gardener’s earnings. Other independent contractors that should receive Form 1099 include:
- HVAC technicians
- Professional cleaners
- Carpenters and handymen
- Sanitizing services
However, there is no need to file Form 1099-NEC for independent contractors who belong to an S or C corporation.
Form 1099-MISC is used to report payments made to non-employees during the calendar year, but only if the annual payment reached more than $600. Form 1099-MISC includes payments made for rent unless the tenant pays directly to the property managers. In that case, filing Form 1099-MISC would be unnecessary. The following are situations wherein an individual would have to file Form 1099-MISC:
- Commercial tenants renting commercial properties must give their landlord Form 1099-MISC if they pay more than $600 in rent per year.
- Property management companies should use Form 1099-MISC to report rent payments made to property owners.
- Property managers should prepare Form 1099-MISC for attorney’s fees and other legal services during the eviction process.
- Property managers must prepare Form 1099-MISC if they hired independent contractors and paid them at least $600 during the calendar year.
Form W-9 is also called the “Request for Taxpayer Identification Number and Certification.” It is an IRS form that is used to provide the person making the report with the recipient’s correct taxpayer identification number.
For instance, property managers may request landlords to complete Form W-9 for them to properly file Form 1099-MISC. Similarly, property managers must also request independent contractors who were paid more than $600 during the year to file Form W-9.
What if They Refuse to File Form W-9?
It is important to require contractors and vendors to fill out Form W-9 before they begin working. This ensures that the contractor or vendor freely submits their taxpayer identification number, so that you don’t have to chase after them when tax season comes. Keep Form W-9 in your records but remember to store it securely, as it contains sensitive personal data.
Do You Always Have to File Form 1099?
As a landlord or property owner, you do not have to file Form 1099 when your payments to a vendor (e.g. contractor, plumber, etc.) are less than $600 for the entire year, or when you paid for goods instead of services.
Another exemption is when you are paying for maintenance work, repairs, and other rental-related services that are rendered by incorporated businesses. In this case, you do not have to file Form 1099-NEC. If you are unsure whether the contractors you hired belong to a corporation, requesting them to file the Form W-9 can clear things up.
Are There Consequences to Not Filing Form 1099?
The IRS takes tax compliance very seriously. With Form 1099, they are making sure that entities and individuals who are generating income through non-employment should be taxed accordingly.
Landlords, property owners, and property managers who fail or refuse to file the IRS Form 1099 could face penalties amounting to $100 per form — but that’s only for oversights. If the IRS discovers that you intentionally avoided filing the appropriate Form 1099, you could be paying as much as $250 per form.
When is the Deadline for Form 1099?
Form 1099-MISC, Form 1099-NEC, and other forms that are used for reporting income are normally due on January 31. However, the IRS has moved the deadline to February 1 this calendar year. It’s important to note that the IRS does not grant extensions, and you may have to pay the late filing fee of $50 per form.
Early preparation can help your rental business avoid problems when tax season arrives. For instance, you can get a headstart by verifying your contractors’ information such as their taxpayer identification number.
Need Help With Your Taxes?
The property managers at Luxury Property Care have years of experience under their belt. As licensed real estate agents, our team has the industry knowledge required to navigate the complex world of taxes. Give us a call today at (561) 944 -2992 to learn more about how we can help you file the necessary IRS Forms. You can also send your inquiries through the contact form on our website.