1099 Guidelines for Attorneys and Law Firms

Originally published by LayPay – see original article here.

With the New Year upon us and the January 31st 1099 submission deadline looming, we wanted to help solo attorneys and small law firms identify which vendors may require 1099s, as well as share best practices for staying compliant with 1099 reporting requirements.

What is a 1099 Form and What is it Used for?

Form 1099 is an essential document used to report payments made to non-employees, such as independent contractors, freelancers, and sole proprietors. These forms serve as a record of income earned by these individuals (or their business entities) and are crucial for accurate tax reporting.

It’s important to note, when the vendor payment amount that a business reports (on a 1099 form) doesn’t match the amount the vendor reports as earned, it raises red flags for the IRS—this is why reporting accuracy is so important.

When to issue 1099s:

• To contractors and service providers:
  • Issue Form 1099-NEC if you paid a contractor or service provider over $600 during the calendar year for nonemployee compensation, such as fees for services rendered. This includes payments made by check, debit card, or ACH.
    • Payments made via credit card do not count towards this threshold and will be reported by the credit card merchant processor.
• Issue Form 1099-MISC if you paid a vendor or service provider over $600 during the year for things such as rents, royalties, prizes, and awards.
  • This is the form you will issue your landlord/property management company.
• To law firms: Issue Form 1099-NEC to all law firms, regardless of their tax filing status.
• To landlords: Issue Form 1099-MISC to landlords, regardless of their entity type.

Specific 1099 Considerations for Legal Fees & Case-Related Services

In addition to the types of vendors you may normally think of as “contractors”, attorneys and law firms often engage with other types of potentially 1099-eligible businesses. Some examples include:

• Legal support services: Payments made to independent attorneys, paralegals, process servers, stenographers, private investigators, etc., for services rendered.
• Expert witness fees: Payments made to expert witnesses for their testimony or services.
• Research and consulting fees: Payments made to individuals or firms for research or consulting services related to legal cases.

When NOT to issue 1099s:

• To corporations: Do not issue 1099s to corporations.
  • If vendors indicate on their W9 that they file their taxes as an “S Corporation” or a “C Corporation”, they do not require 1099s. This includes payments to the LLCs which have elected to be treated as S Corporations for tax purposes.
• To employees: Do not issue 1099s to employees.
• For reimbursements: Do not include reimbursements, such as for office supplies, meals, or travel expenses, in the calculation of a vendor’s total 1099-able compensation.
• Contractors paid via payroll: Typically, contractors paid via your payroll provider will be sent their 1099s directly from the payroll company.
  • We recommend confirming this with your payroll provider to be sure.

1099 for Lawyers: 6 Final Tips

• Find a downloadable and fillable version of Form W9 here.
• The best practice that we advise our customers to follow is to require a completed W9 from all potentially 1099-eligible vendors ahead of paying their first invoice.
• Keep copies of all 1099s and W9 for your records, including the W9s from vendors who are S or C Corps.
• If you are unable to reach a vendor to get their W9/1099 information, we recommend making several attempts to reach them via the same email thread, and then saving a copy of the thread to their vendor file – this will serve as proof that your firm did its due diligence in attempting to issue the 1099.
• Report any incorrect information on a 1099 form to the IRS as soon as possible.
• If you have additional questions and/or are unsure whether a worker is an employee or a non-employee, consult with your tax professional.