The 1099 Form

This form is not issued if the supplier is a corporation or if the payments are for rent to real estate agents; telegrams, telephone, freight or storage; wages paid to employees; business travel allowances paid to employees; and payments made to tax-exempt organizations. An example of the 1099 form is shown in Exhibit 5.4.

Exhibit 5.4: 1099 Form

The 1099 form is similar to the W-2 form in that the upper left corner of the form contains employer contact information and the lower left corner contains supplier contact information. The right side of the report contains a number of boxes for itemizing the types of payments made to suppliers. The most commonly used box is number 7, "Nonemployee compensation," which is a catchall for the majority of payments made, unless they are specified in one of the other boxes. Box 4 is also needed if the company cannot obtain a taxpayer identification number (see next paragraph) from a supplier, in which case it must withhold 30 percent on payments made and report the withheld amount here.

The key factor for the average business is to determine if its suppliers are corporations. This is most easily done by issuing a W-9 form, "Request for Taxpayer Identification Number and Certification," on which the supplier states its form of legal organization and identification number, which the company can then use to issue a Form 1099, if necessary. A sample W-9 form is shown in Exhibit 5.5.

Exhibit 5.5: W-9 Form

The W-9 is a simple form. The supplier fills out the identification information in the top block, enters an identification number in Part I, and signs the document in Part II. Suppliers may change their form of legal organization from time to time, so a company seeking to be in complete compliance with the law may want to consider making an annual W-9 mailing to all of its suppliers, so it has documentary proof of why it is (or is not) issuing 1099 forms.

TIPS & TECHNIQUES

Rather than go to the expense of making an annual mailing of W-9 forms to suppliers, you can simply e-mail them a PDF file that contains the form's image. Suppliers can then print the form directly from the e-mail program and either mail or fax back the completed form. To take advantage of this tip, however, you must compile a database of e-mail addresses for the accounting contacts at all suppliers. If this information is not available for some suppliers, then a supplemental mailing is typically required to account for them.