Unraveling the Myth: Do You Really Need to File a 1099 for Lawyers Under $600?
Introduction
In managing the Bookkeeping for my family business, I stumbled upon a puzzling piece of advice that seems to be causing some confusion in the Accounting world. After replacing a costly professional who made several errors, one major issue arose: the insistence on issuing a 1099 form to our lawyer, despite having paid them only $350 for the year. Our previous bookkeeper claimed that any payment over $1 warranted a 1099 for lawyers and was notably upset when I questioned this.
Research and Findings
In my pursuit to clarify this, I meticulously combed through the tax code, conducted extensive online research, and even consulted with our lawyer, who doubles as a CPA. Yet, I found no supporting evidence for this perspective. The tax regulations I reviewed did not align with what our bookkeeper suggested.
The Persistent Misconception
Interestingly, this topic resurfaced in a conversation with my mother-in-law, who worked as an in-house bookkeeper for a decade. To my surprise, she also maintained that any payment to a lawyer requires a 1099 form, citing it as part of her training.
Seeking the Source
This widespread belief left me wondering: Where did this misunderstanding originate? Could it be the result of someone misinterpreting the tax code during a Bookkeeping seminar and inadvertently spreading this misinformation?
By shedding light on this area of confusion, I hope to clarify the proper protocols and help prevent unnecessary misinformation from spreading within the Bookkeeping community.
One response
The misconception that lawyers need to be issued a Form 1099 for any amount, regardless of the $600 threshold, likely stems from a misunderstanding or misinterpretation of specific IRS regulations combined with changes that were made over time in reporting requirements for legal services. Understanding where these regulations likely originated and how they are applied today can help clarify the issue for bookkeepers and others involved in handling a company’s accounts.
Understanding the IRS Requirements
Historically, businesses have used Form 1099-MISC to report payments to non-employees, including fees paid to attorneys. In 2020, Form 1099-NEC was reintroduced to specifically report payments of $600 or more for services performed by non-employees, including attorneys.
The $600 Threshold:
According to IRS regulations, a Form 1099-MISC or 1099-NEC must be filed for each person to whom, in the course of your trade or business, you have paid $600 or more during the year. This threshold applies broadly to payments for services, including legal services.
Special Requirements for Attorneys:
Likely Origins of the Misconception
As you speculated, it’s possible that misinterpretation during training or simplified instruction for efficiency without clarification led to this misconception. Trainers may have emphasized the special rules for attorneys without properly distinguishing between reportable transactions for services and other types of legal payments.
Confusion From Previous Requirements:
Changes in forms and requirements, such as the use of Form 1099-NEC, might have added confusion. Additionally, earlier IRS communications might have been interpreted or relayed incorrectly, falsely suggesting the “any amount” standard, reinforcing the misconception among bookkeepers and accountants.
Security in Reporting: