Ask the Accounting Community

I've always had a policy of reporting all payments to a 1099 vendor on their 1099.  It was not only the easiest and less risky option but the vendor could deduct expenses on their tax form if needed.  I'm now getting pressure from management to NOT include expense reimbursements for one of these vendors since they hate having to fill out a Schedule C.
Unfortunately, I can't find a quick and easy answer on the IRS site if 1) this is acceptable for some payments to be excluded with a vendor while others should not be and 2) can you have a policy that isn't the same for everyone.  
I realize I would rather keep it simple so I'm dragging my heels some but also want to be incompliance

Thanks

------------------------------
Travis Remington CMA, CFM
Vice President
Barenbrug
Albany OR
United States
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Fringe Benefits for Independent Contractors

Generally, the taxability of fringe benefits or reimbursements paid to independent contractors is similar to that for employees. However, different withholding and reporting requirements apply to these workers. Treas. Reg. Section 1.132-1(b)(2)(iv) 

Note: Independent contractors are not eligible for qualified transportation fringe benefits. Treas. Reg. Section 1.132-9(b) Q-5

Reimbursements for Travel, Transportation, and Other Out-of-Pocket Expenses

Expense reimbursements or advances must meet the accountable plan rules to be excluded
from reporting and income. In general, all compensation for services for an independent
contractor must be reported on Form 1099-MISC when the amount (excluding reimbursements
under an accountable plan) is $600 or more in a calendar year. The amounts are not subject to
income or employment tax withholding.

Example: An independent contractor is hired to perform specific services for a set fee, plus out-of-pocket expenses. If the contractor provides adequate substantiation for the out-of-pocket expenses, reimbursements for these expenses will not be reported as income by the payer on Form 1099-MISC, or by the contractor on their individual income tax return. The contractor may not deduct the expenses if they are reimbursed by the payer. If the contractor
is not reimbursed, adequate substantiation of the expenses should be retained to claim expenses on the contractor's individual income tax return.

If the individual is considered an independent contractor and does not properly account to the payer for reimbursed expenses, then any advances or reimbursements are to be included on a Form 1099-MISC as taxable nonemployee compensation, along with other payments for their services.

Substantiation Requirements
Publication 463 provides information on records, substantiation, and reporting requirements for independent contractors.
Independent contractors are treated in the same manner as employees for the purposes of working condition fringe benefits. 

https://www.irs.gov/pub/irs-pdf/p5137.pdf 

------------------------------
Ronnie Alexander CMA,CPA,CIA
Academic
Missouri City TX
United States
------------------------------

Thanks, this is nice to have the technical IRS information

------------------------------
Travis Remington CMA, CFM
Vice President
Barenbrug
Albany OR
United States
------------------------------

Original Message:
Sent: 12-19-2023 03:26 AM
From: Ronnie Alexander
Subject: 1099 reportable payments

Fringe Benefits for Independent Contractors

Generally, the taxability of fringe benefits or reimbursements paid to independent contractors is similar to that for employees. However, different withholding and reporting requirements apply to these workers. Treas. Reg. Section 1.132-1(b)(2)(iv) 

Note: Independent contractors are not eligible for qualified transportation fringe benefits. Treas. Reg. Section 1.132-9(b) Q-5

Reimbursements for Travel, Transportation, and Other Out-of-Pocket Expenses

Expense reimbursements or advances must meet the accountable plan rules to be excluded
from reporting and income. In general, all compensation for services for an independent
contractor must be reported on Form 1099-MISC when the amount (excluding reimbursements
under an accountable plan) is $600 or more in a calendar year. The amounts are not subject to
income or employment tax withholding.

Example: An independent contractor is hired to perform specific services for a set fee, plus out-of-pocket expenses. If the contractor provides adequate substantiation for the out-of-pocket expenses, reimbursements for these expenses will not be reported as income by the payer on Form 1099-MISC, or by the contractor on their individual income tax return. The contractor may not deduct the expenses if they are reimbursed by the payer. If the contractor
is not reimbursed, adequate substantiation of the expenses should be retained to claim expenses on the contractor's individual income tax return.

If the individual is considered an independent contractor and does not properly account to the payer for reimbursed expenses, then any advances or reimbursements are to be included on a Form 1099-MISC as taxable nonemployee compensation, along with other payments for their services.

Substantiation Requirements
Publication 463 provides information on records, substantiation, and reporting requirements for independent contractors.
Independent contractors are treated in the same manner as employees for the purposes of working condition fringe benefits. 

https://www.irs.gov/pub/irs-pdf/p5137.pdf 

------------------------------
Ronnie Alexander CMA,CPA,CIA
Academic
Missouri City TX
United States
------------------------------

Thanks for the quick reply.  I would agree that being safe vs. sorry makes sense.  Even the IMA's webinar said the same thing 

------------------------------
Travis Remington CMA, CFM
Vice President
Barenbrug
Albany OR
United States
------------------------------

Original Message:
Sent: 12-19-2023 08:03 AM
From: Todd Moeggenborg
Subject: 1099 reportable payments

I just attended a tax seminar and this topic was discussed.  The presenters were retired IRS agents and it was stated that all payments, including reimbursements, should be reported on the 1099.  The contractor can, if applicable, deduct the corresponding expenses on their tax returns.

 

 

 

Todd J. Moeggenborg, CMA VP/Controller Direct: 989-875-5528 Fax: 989-875-4534

101 N. Pine River St. Ithaca, MI 48847 www.commercial-bank.com

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