1099 filings for landlords [2021 edition + deadline chart]
The information in this article is intended to be a general overview for property managers and landlords on the recent changes made to Forms 1099-MISC and 1099-NEC. Because every portfolio and situation is different, as well as different states may have additional laws, make sure you consult an accountant, attorney, tax professional, or financial advisor to ensure you are submitting correctly, as well as maximizing your returns/deductions.
The various 1099 forms capture income for the Internal Revenue Service (IRS) that may not otherwise be reported. This is commonly used for independent contractors to report earnings, but also has applications for landlords and property managers.
The basic rule is that if you own commercial or residential property, you will likely be required to submit a 1099 form if you hire and pay $600 a year or more to independent contractors. As with anything in real estate, you should consult your professional tax advisor to determine the best course of action for your situation.
Understanding Form 1099 and how it applies to property owners is critical to our rental management framework. Here’s what to keep in mind as you prepare your annual tax return.
The basics of Form 1099 for landlords
The IRS uses various Form 1099s to report different types of information, including annual taxable income. Not to be confused with Schedule E, the IRS uses Form 1099 to reconcile income reported for tax purposes.
There are 20 types of Form 1099 (full list available on the IRS website here). The forms covered in this article that are most applicable to rental property owners, landlords, and property managers in regards to their rental properties are:
- 1099-MISC: Formerly used for independent contractors, this form is now only used for miscellaneous income. For rental properties, your most likely use case is reporting attorney fees. You can view the full list of miscellaneous income categories here. For commercial tenants, they also must report their rent through this form.
- 1099-NEC: If you hire or work with an independent contractor, you are paying a non-employee and therefore may have to issue a Form 1099-NEC for that vendor if certain criteria are met.
- 1099-K: Used to report payments through card transactions and/or settlement of third-party payment transactions. The third party helping to process the payment, such as Hemlane, will issue this for you if you meet certain criteria.
Pro Tip: Use software like Hemlane to help file 1099 forms. Hemlane will file a 1099-K to the IRS if you received over $20,000 of payment transactions through Hemlane and Hemlane processed over 200 payments to you. The Form 1099-K requires the reporting of gross transaction volume, and the reflected amount may be higher than your received payouts or profits. And, you most likely will be exempt from filing the 1099-MISC and 1099-NEC if the transaction is paid online through Hemlane as we capture transactions already through the 1099-K. Incredible, right?
Landlords and property managers should be aware that starting in the 2020 tax year and going forward, the IRS has revised Form 1099-MISC and re-introduced Form 1099-NEC.This is the biggest change to Form 1099-MISC in over three decades!
In previous years, nonemployee compensation has fallen under 1099-MISC. This is no longer the case with Form 1099-NEC. NEC stands for non-employee compensation and it is now required to be filled in to report non-employee compensation. For example, all income paid out to vendors, legal consultants, and contractors.
Form 1099-NEC: When do I file?
Form 1099-NEC: Effective for the 2020 tax year, payments to non-employees (independent contractors) must be reported to the IRS and provided to the vendor on form 1099-NEC.
Pro Tip: When in doubt at any stage of the 1099 process, consult a professional tax advisor to better understand your requirements.
As mentioned above, Form 1099-NEC is now to be used for reporting payments made to vendors, contractors, and other non-employees. For rental properties, examples include:
- Attorneys' fees
- Appliance repair
- General Contracting
- Lock changes
- Pest control
Remember that this is for payments of $600 or more made during the calendar year.
For property managers, 1099-MISC would be for reporting owner’s rents, and 1099-NEC for payments made to vendors when they meet the reporting criteria
You do not need to file a 1099-NEC form for payments made to an incorporated business (aka corporation). Most rental property owners and maintenance vendors are limited liability companies (LLCs), and a 1099-NEC will still need to be filed for those.
Pro Tip: When properly completed and signed, Form W-9 will indicate when Form 1099 is required for a vendor. They will advise on this if they are incorporated and this also ensures that you have the necessary information required for your annual filing. For example, if the taxpayer ID is missing or incorrect, the IRS will reject the form.
Form 1099-MISC: When do I file?
Form 1099-MISC: To be filed for people or non-incorporated entities that paid at least $600 in miscellaneous income.
You will file a Form 1099-MISC (Miscellaneous Income) for each person in the course of your business to whom you have paid the following during the year:
- Commercial rents or services (Box 1). For example, payments to rent or lease office space (for commercial properties only), but not payments to real estate agents or property managers.
- Royalties or broker payments (Box 2). At least $10 in lieu of dividends or tax-exempt interest.
- Withheld federal income tax (Box 4) regardless of the amount of the payment. Even if the total is $600 or less, you must report ALL backup withholding amounts for anyone for whom you have withheld income taxes under a backup withholding order. If the backup withholding is for a nonemployee, use Form 1099-NEC to report these payments.
- Attorney fees for legal services, but not for the attorney’s services (Box 10). $600 or more and are not reportable by you in box 1 of Form 1099-NEC. This can be a confusing differentiation. For example, as in a settlement agreement, you would not report the fees paid to the attorney for taking on the case.
Form 1099-K: If a payment processor has a yearly volume of $20,000 or more, and at least 20,000 transactions from your entity, then they will send you a Form 1099-K.
Exceptions to filing Forms 1099-MISC and 1099-NEC
There are a number of exceptions to having to submit forms 1099-MISC and 1099-NEC. For a full list of 1099-MISC exceptions, visit the IRS website here. It is not required if:
- TOTAL payments within the year are less than $600.
- The payment is made to a corporation.
- You will need to confirm if LLCs are taxed as a C or S corporation (you can confirm this with the vendors that you work with).
- The purchase was for goods instead of services.
- Payments of rent to real estate agents or property managers.
- However, the real estate agent or property manager must use Form 1099-MISC to report the rent paid over to the property owner.
- Credit card payments and payments made through Hemlane, PayPal, etc. as these payments are being reported by the card issuers and third-party payment networks (see 1099-K information below).
Use Form W-2 for:
- Wages paid to employees.
- Business travel allowances paid to employees.
Pro Tip: Using a payment processor for rent collection will most likely mean even your commercial tenants won’t have to file a 1099-MISC for rents as this will be done by the third-party payment processor.
1099 Forms: Common situations where they’re needed
As listed above, property managers must receive a Form W-9 from the landlord and file Form 1099 to report rents paid of $600 and above during the tax year. When working with vendors that are not taxed as corporations, 1099s will also be required if they were paid $600 or more over the course of the year.
Here are some other situations where you may be required to submit a 1099 form.
- Owner disbursements sent to your partners totalling more than $600.
- Payments of attorney fees, for tasks such as evictions or the collection of unpaid rent.
- Medical and health care payments made during that tax year.
- You paid an independent contractor such as plumber, repair person, and locksmith.
- COVID-related deep-cleaning.
- Service providers, such as dry cleaning or laundry.
- If you use an online credit card processor for rents, such as Stripe or Square.
- If you receive funds through an online payment service platform like PayPal or Hemlane.
- If you use a freelancing platform, like Upwork, that manages your client payments.
Form 1099-MISC deadlines
Form 1099-MISC were due to recipients by February 1, 2021. If businesses are using Form 1099-MISC to report amounts in box 8, Substitute Payments in Lieu of Dividends or Interest, or box 10, Gross Proceeds Paid to An Attorney, there is an exception to the normal due date. Those forms were due to recipients by February 16, 2021.
IRS paper filing is due March 1, 2021, and electronic filing March 31, 2021.
Form 1099-NEC deadlines
Form 1099-NEC was due to recipients and filed with the IRS, on paper or electronically, on February 1, 2021.
There is no automatic 30-day extension to file Form 1099-NEC. However, an extension to file may be available under certain hardship conditions.
Pro Tip: File online through the IRS File Electronic Returns Electronically (FIRE) system.
2020 guide to information returns from the IRS
Submitting 1099 forms with your state
Some areas require you to also file 1099 forms with the state. The following states do not require 1099 forms to be submitted:
- New Hampshire
- New York
- South Dakota
Some states participate in a program where the IRS will forward relevant forms only if they were filed electronically. Check with your CPA to ensure you are compliant with any of your state’s 1099 filing requirements.