Tax season is a busy time for finance departments. Creating 1099 reporting is one task that can take less time with accounts payable (AP) automation. Read on to learn more about how technology can help your team simplify this time-consuming project.
What is a 1099?
According to H&R Block, a 1099 is a tax form used in the United States to report various types of income that are not wages, salaries, or tips. It is commonly issued to independent contractors, freelancers, or suppliers who have been paid $600 or more during the tax year. The form helps both businesses and the Internal Revenue Service (IRS) track income for tax reporting purposes.
What is the 1099-NEC Form?
The 1099-NEC form replaced a section of the 1099-MISC form in 2020 for non-employee compensation, according to TurboTax. According to the IRS, the 1099-NEC is for reporting payments to:
• Freelancers
• Laborers
• Non-employee sales commissions
• Services from anyone who is not your employee, such as accountants, architects, and engineers
These payments must equal $600 for the calendar year and have been conducted via paper check, wire transfer, ACH transfer, or direct deposit. If you paid for these services via credit card, you DO NOT need to file a 1099-NEC, according to the IRS.
For the 2024 tax year, businesses must issue a 1099-NEC to recipients and file it with the IRS by January 31, 2025, according to the IRS.
1099 Reporting with AP Automation
1099 reporting refers to the process of determining which of your suppliers require a 1099 and filing that form with the IRS and the supplier, according to Investopedia.
AP automation can simplify this process greatly. Using reports and filters, you can create a list of suppliers you’ve paid $600 or more this year, excluding credit card payments. If you are already an AvidXchange customer, there are instructions on how to do this in the Knowledge Center.
If you’ve kept your vendor master file up to date, you should have a W-9 on file for each supplier that includes all the information you’ll need to file your 1099-NEC forms.
In 2024, the IRS issued guidance making it mandatory for any business filing more than 10 information returns to do so electronically. There are e-filing services to help you do this efficiently, including many that are IRS-authorized.
How AP Automation Helps During Tax Time
In addition to 1099 reporting, AP automation can help AP teams during tax season by streamlining processes, improving accuracy, and reducing manual workloads.
Easy Virtual Card Payments
Paying your suppliers via credit card eliminates the need for 1099 reporting altogether, according to the IRS. Payment automation via virtual credit card can save your team time, enhance payment security, and simplify reconciliation.
Improved Data Accuracy
AP automation can reduce manual data entry errors by automatically extracting payment details and vendor information. This helps create accurate tax forms so there’s no need to make updates or fix mistakes.
Reduced Manual Work
By automating tedious work like data entry and PO matching, AP employees have more time for education and strategic projects. This can include reading up on the latest tax policy changes to ensure a smooth process for your business.
Simplified Reconciliation
Automated systems can provide timely reporting and visibility into supplier payments, making it easier to reconcile accounts during tax season.
Audit Preparation
AP automation can offer a digital audit trail of payments, providing easy access to records in case of an audit.
Time Savings and Efficiency
Automating manual AP tasks, such as coding invoices, matching POs, and issuing check payments, allows AP teams to focus on higher-priority tax season tasks.
Simplify 1099 Reporting with AP Automation
1099 reporting is streamlined with AP automation. It’s even further simplified with automated virtual credit card payments. Learn more about how AP automation can help your team at tax time by connecting with one of our experts.
Note: AvidXchange, Inc. (AvidXchange) does not provide tax advice. The information presented on this page is based on research and intended for educational purposes only. Consult with your tax accountant before making decisions on completing or filing any tax forms. By utilizing the information in this article you agree to release AvidXchange from any and all liability arising out of or related to your reliance on and utilization of the information contained in this article.