Managing tax compliance can be a complex and daunting task, especially when it comes to ensuring that all payments made to non W-2 workers (non-employees) are accurately totaled, reported and filed. If you're responsible for sending out 1099 forms to individuals or businesses, you may already be familiar with the federal requirements. However, federal requirements are only half of the reporting equation for 1099 tax forms.
Each state has its own approach to tax rules and regulations for 1099 reporting -- some participate in the Combined State/Federal Program (CS/FP), a program that forwards electronically filed federal forms to participating states, and require no additional tax filings, some always require a state tax filing, some fall somewhere in between.
Before we delve into state-specific requirements, let's briefly review what 1099 forms are. In the world of taxes, a 1099 form is used to report various types of non W-2 income. There are different types of 1099 forms, such as 1099-NEC for non-employee compensation, 1099-MISC for miscellaneous income, and more. These forms are typically sent to individuals or businesses that have received $600 or more during the tax year for non-employee services or income. For more info on the full picture, check out Abound’s Guide to the 1099 Lifecycle.
Note - form type, thresholds and deadlines will vary depending on type of income generated.
When it comes to 1099 reporting, the federal government has specific requirements that apply to all individuals and businesses across the country. For instance, payers must provide the appropriate 1099 forms to payees by January 31st of each year and submit copies to the IRS by the same deadline. However, states can impose additional rules, deadlines and penalties, making it essential that payers are aware of state-specific requirements. For a more complete look at the different types of 1099 forms and specific treatment for each, please refer to our Guide to 1099s & Fast Filing. To learn more about common 1099 requirements at the state-level, keep reading.
Not all states have additional requirements beyond the federal regulations, but if they do, there are some common requirements to be aware of (and check against for each state):
To stay compliant with both federal and state 1099 reporting requirements, here are some essential activities that every payer needs to keep in mind:
While each of these activities is equally important in maintaining a transparent, effective tax compliance process, it’s important to note that not all steps have to be performed by your internal team. If a payer uses the right software or service, research, recordkeeping, and planning are managed for them and, many times, at a fraction of the cost for what they’d pay to do it in-house. Abound offers a cost effective service that removes the need for its customers to be tax compliance experts and recordkeepers, and instead provides a built-in dashboard that allows customers to automate tax compliance activities, monitor activity status and access historical documents 24/7/365.
State-level requirements for 1099 tax filing are constantly changing. To give you a general understanding of the current 1099 tax filing environment, we have included a list of the 50 states + District of Columbia and their current treatment of 1099-MISC tax forms. There are additional nuances within the actual ‘how’ of filing in each individual state which require additional research or support from a trusted partner or service.
If this topic feels complicated, it’s because it is. Hopefully this guide has been helpful in setting you on the right path to tax compliance. If you decide that state-level tax compliance is too much to manage or you just plain don’t want to deal with it - reach out to us directly at partner@withabound.com. We’d be happy to ease the burden.
