Do I Need to File a 1099 and a 1096 in California?

1099 and 1096 forms are federal forms used for reporting miscellaneous income to service providers of a business. If you are a business and paid any person or entity over $600 for services provided to the business, you must send them a “1099-Misc” to show the total amount paid, and a 1096 to the Internal Revenue Service to summarize the 1099s filed. California does not require your business to file a 1099 or 1096 form in addition to the federal filing requirement.

Payee Information

Since the law requires that you issue a 1099 to anyone you pay for services $600 or more, you’ll need to send any service provider a W-9 that asks for the provider's name, address and Social Security or federal identification number. Have any new service provider complete the W-9 before starting any work or service. Corporations are exempt from this.

Accounting For Service Providers

Most businesses set up a sub-ledger that identifies each service provider in a subsidiary account. This is to keep track of the payments made to each service provider. Each month the subsidiary ledger of all service provider fees paid should match the general ledger total for service providers. Consult with your accountant to determine the best way to set this up.

Filing Requirements

You are required to send all the 1099 forms to your service providers who you paid over $600 by January 31 following the current tax year. This shows the gross payment you made for services rendered. You’ll need to attach all the 1099 forms to a 1096 transmittal form that you send to the IRS by February 28, but if you file electronically, you can send the report in by March 31.

Considerations

You should file the 1099s for several reasons: The penalty for not filing an appropriate 1099 is $50 per form that should have been filed. Also, when you file a 1099, this ensures the deductibility of the expense on your tax return. You can also issue 1099s for service providers you paid under $600, but it is not required by law. A modified version of the 1099 filing requirements that would have required business to also report for payment of goods in addition to services over $600 was repealed by the U.S. Congress.

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About the Author

I graduated with a degree in Finance from Cal Poly Pomona and have held an active Brokers License for over 30 years. I also owned an accounting and tax practice for ten years. I'm an expert in all matter relating to mortgages, accounting, small businesses and taxation, and investing.