The Basics of 1099 Filing (for Beginners)
At the most basic level, Form 1099 is an information reporting form used by the IRS as well as federal and state taxing entities to track payments made to independent contractors and to report those payments to the Internal Revenue Service and/or state tax departments. A wide range of payments are reportable including but not limited to the following: interest paid on bank accounts, dividends received from dividends and securities, payments to independent contractors, pension distributions, and the like. Almost all non-wage payments are reportable on Form 1099.
There are 20 or more different types of 1099 forms that are used in different circumstances. For example, Form 1099-Misc is used by most businesses to report payments to independent contractors. For a business that manufactures or sells goods it needs to report certain payments of goods and services on Form 1099-K. If unpaid rent is paid through a real estate management company it must be reported on Form 1099-Misc . Another common reportable payment is the distribution of funds from a pension plan or an annuity to retirement account holders that is reportable on Form 1099-R. These are just a few of the most common 1099 reporting requirements but there are many more. The IRS has a very detailed guide to the different categories of 1099 Forms and when they are applicable.
As taxpayers become more aware of these reporting requirements, 1099 filing requirements are becoming more challenging for taxpayers. All business owners must familiarize themselves with all reportable payments they are making to independent contractors/consultants as well as to vendors and ensure they are completing and filing the correct form with the IRS. Taxpayers are all too familiar with receiving sales tax, property tax and income tax notices from Department of Revenue – they should be equally familiar with Form 1099 when dealing with the IRS.
Arkansas-Specific 1099 Requirements
Although Arkansas and Federal 1099 filing requirements are the same in many cases, the following requirements are unique to Arkansas: The Arkansas 1099-MISC form is essentially the same as the federal form. The form must be submitted per Ark. Code Ann. § 26-51504. Arkansas statutes do not exempt the specific forms from the requirement, but instead require frequent filers and the 1099-MISC form to file. The thresholds above are not the same as the thresholds required to file a federal Form 1099-MISC. If the income reported does not exceed $300 annually, the Arkansas Department of Finance & Administration ("DFA") will consider that amount as de minimus and not subject to the reporting requirements. The requirement to file an Arkansas Form 1099-MISC for in-state purchases is not a recent addition. Pursuant to Ark. Code Ann § 26-51-122, effective January 1, 2002, Arkansas began requiring a Form 1099-Misc for all unlicensed contractors and subcontractors that perform work or provide material on real property located in Arkansas. The 1099-Misc is required for all payments over $600. Arkansas DFA began enforcing this requirement in 2007.
Who Needs to File 1099s in Arkansas?
The general rule is that anyone who is a payor to a "payee" must file a 1099. This includes any person, individual, or business entity/partnership that pays a person for services rendered or for assets purchased.
In the State of Arkansas, the following must file a 1099:
Businesses with a Federal Employer Identification Number (FEIN) and engaged in the business of purchasing goods or services for resale or use by the company as part of normal daily operations. Taxable entities with a Federal Employer Identification Number (FEIN) that have exempt and nonexempt members, and are filing a consolidated income tax return. Qualified taxpayers with an FEIN that offers contractual services, but obtains their supplies from vendors. Single member limited liability companies (SMLLC) with a FEIN filing a consolidated return and an S Corporation with 100% ownership by taxpayers. A payor who is not a LLC or corporation, and does not have a FEIN, is required to file information returns on annual taxpayers, such as corporations, who carry on business activities and report that business income on a partnership return or an information return.
Payables Department for corporations, including attorneys, accountants, utilities, contractors, government agencies, grants and local government entities must file a 1099. Social Security Numbers for individuals and sole proprietors must file a 1099. Sole Proprietorships with a business FEIN must file a 1099, but SMLLCs are not required to file a 1099 if the parent LLC is filing.
Individuals or unregistered businesses that furnish professional services and utilize individually owned items that are furnished to clients and customers in the course of normal operations, or receive referrals from professional associations such as lawyers, real estate, physicians, brokers, consultants, and other professions must file a 1099.
Filing Deadlines and Penalties for Late Filing
Despite the April deadline, the Arkansas Division of Revenue processes 1099 documents received after the deadline, and uses them primarily for matching purposes. But 1099 forms filed after January 31 do not appear on the Arkansas Tip Report (TR) which provides employers with total tip income data for auditing purposes. The TR uses only 1099 forms that are received by the Division of Revenue prior to January 31 of the year following the income paid.
Arkansas does not impose penalties for the failure to file 1099 forms by the required deadline, with the exception of 1099-DIV. Forms that are required to be mailed to individual taxpayers with respect to shareholder distributions are deemed to be filed as required upon mailing to the correct address of the intended recipient, regardless of whether they are received by the individual before the due date. A $25 penalty may be asserted against a taxpayer for every 1099-DIV that an employer fails to mail to the correct address of the intended recipient. This penalty may be assessed in any audit period in which the Department determines that the actual shareholder distributions were underreported.
The only extension of time for filing 1099 forms that the Department provides is an extension for filing 1099-R forms for distributions from profit sharing plans or retirement plans. According to Act 723 of 1999, the Department is authorized to extend the due date of 1099-R for the purpose of "coordinating with the Internal Revenue Service." The Department’s policy is to extend the due date until 30 days after the last date specified for federal filing. This extension of time applies only for the purpose of filing the 1099-R form, but does not apply for purposes of filing an accompanying income tax return.
How to Submit 1099 Forms in Arkansas
Arkansas requires the filing of Form AR1000-UD for all 1099 forms. Administrative Notice 2020-12 addresses requirements to e-file 1099s and W2s in Arkansas. Generally, e-filing is mandatory for businesses with more than 250 returns to file. Exceptions apply to underpayment, where the law permits aggregate annual payments less than $100 , 000. Taxpayers can use a state-run program or third-party services to file tax information. The DOR provides a WAIVAR form for taxpayers who submitted 1099 returns through certified software and cannot import the data into WAIVAR. There is also the option to use the Federal Fire System (FIRE) to re-file the information with Arkansas.
- Log in to accounting software
- Click "Records/Reports"
- Then "Create Forms"
- Then "Create 1099"
- Then "Create 1099-NEC and 1099-MISCE forms"
- Select the year
- Select employees and contractors to file
- Click "View 1099-NEC/1099-MISC forms"
- Click "Download"
- Select "Export"
- Select "CSV" to create your .csv file
- Upload this file to AR1000-UD
The Arkansas Department of Finance and Administration has partnered with Greatland Corporation to collect Form 1099-MISC and 1099-NEC forms.
Common Pitfalls: What to Avoid When Filing 1099s
One of the most common mistakes is misclassifying payments that should be made on a 1099-Misc as 1099-NEC or vice versa. If a payment is made to a corporation or limited liability company (LLC) taxed as a corporation then it does not get a 1099. Of course, there are exceptions to this rule such as payments to attorneys under IRS rules but generally that is the case. An important distinction which should not be overlooked is the definition of a trade or business. There has been a longstanding debate on whether a 1099 should be issued to an individual who is only considered a hobbyist if they received $600. In that situation it probably is not required since they are not engaged in a business. On the other hand, if the person is making periodic sales then they probably would be considered engaged in a business and require a 1099. Perhaps the best tip here is to review each situation and ask yourself would i issue a 1099 even if it were not naming my tax ID number. If not, you probably do not need to issue a 1099.
Another common mistake is only issuing 1099 forms when defaulting to do so may prove to be much more costly. Generally, when you pay a non-corporate entity that is engaged in a trade or business (see above) and you make payments that aggregate to $600 or more on an annual basis you are required to issue a 1099. If you decided to not issue a 1099 and it is determined that the payment should have been reported, the payer (you) are subject to penalties of $50 per 1099 form not filed. If the IRS determines that you willfully failed to file the proper 1099 forms the penalty increases to $100 per payment with a maximum penalty of $1,500,000.
Additional Sources for 1099 Information and Support
For those seeking guidance on Arkansas 1099 filing requirements, assistance is readily available. The Arkansas Department of Finance and Administration’s (DFA) Income Tax Section website is an invaluable resource, containing downloadable tax forms and instructions, as well as links to eFile options and information about state-specific requirements .
Additional resources include the Internal Revenue Service (IRS) website, which provides federal-level 1099 filing resources including a complete list of 1099 forms, as well as online portals for eFiling directly with the IRS.
Professional tax assistance also provides options for Arkansas residents. National and local CPAs and tax software providers have the knowledge and experience to ensure that individuals and businesses are complying with all requirements and meeting deadlines.