1099s for HOAs are often overlooked in the mad dash to wrap up the fiscal year, so make sure you have your 1099-MISC tax forms in view as you prep your contractor payments. Ideally, this procedure should be done by the end of the year, before April's tax season.
Understanding the Process for 1099s for HOA Contractors
Your HOA earns income from association dues and uses these funds to pay expenses and salaries. So, just like any regular business entity, your HOA must file taxes.
During this busy time of year, HOA boards and management company employees scramble to get next year's budgets in place. In a flurry of activity, HOA boards mail out billing statements and complete a long list of other tasks. Thus, it can be easy to overlook certain items, not at the top of the "end of year" list. One task that you will want to ensure you remember this time of year is providing HOA vendors with a 1099 form and filing these forms with the IRS.
That's why having an excellent HOA management company is a blessing during these times. In most cases, the management company can take care of most of the filing of the 1099s for you. They will likely be able to deal with the rest of the tax filing tasks.
However, it's still essential for an HOA board to at least be familiar with filing the 1099s. That goes for the rest of the tax forms your HOA needs to complete. So, your HOA board can help your managers with the tax filing process and speed up the job for everyone. Or if your board is doing the HOA taxes themselves, they can make sure they complete all the forms, and you remember everything.
Why File 1099s for HOA Contractors
Just like other businesses, an HOA takes in all sorts of income. It also pays out money in the form of expenses. Some sources of association income are taxable, and others are not. Income from renting facilities to outsiders, guest fees, easement leases, and bank account interests are all taxable. On the other hand, income from assessments, late fees, and rental fees to association members are usually not taxable.
And just like regular businesses, your HOA can also write off certain expenses from their tax bill. So, there's a potential to reduce the tax your association needs to pay. One way to document the costs is with Form 1099-MISC.
To write off the expense of hiring someone, the HOA needs to send out a Form 1099-MISC to that person. Then the HOA needs to file that correctly, and the association can offset the taxes they owe for that amount. Fewer taxes paid out mean more money retained by the HOA. It's just sound fiscal practice.
What a 1099-MISC Form Is
A
1099-MISC form is also called the miscellaneous income form. It's a federal tax form and also a variant of Form 1099. Just like its designation suggests, these documents report miscellaneous income. As the HOA, you send them out to the contractor or vendor you hired during the year.
You need to have them ready if your community association hires an independent contractor, either as a condominium or a homeowners association. However, you will only need it if your association paid the contractor over $600 during the year.
For payments over $600, the association must file a 1099-MISC form with the Internal Revenue Service. The association must provide the contractor with the form.
These independent contractors often include HOA attorneys and landscapers, among other vendors. Also, in addition to the $600 cutoff amount, the following must hold for your 1099-MISC filing to be valid.
- The payments must be for services only. The form is not applicable if the HOA buys only goods from the contractor.
- The contractor must not be an employee of the association.
- The payments must be to an estate, an individual, a partnership, or (in some cases) a corporation. Corporations only fall under this rule if they provide services to the association rather than selling products.
The payments fall under non-employment compensation by the IRS when one meets the fees, which means the association needs to send a 1099-MISC to the contractor and file a copy with the IRS. If you are still determining whether your association needs to provide a 1099-MISC to a particular vendor, the safest bet is to ask the HOA's accountant.
What Is Needed to File a 1099-MISC Form
To file 1099-MISC forms for contractors, you will need their Tax ID or social security number. You will also need to have their name and business documented as well. The best way to do this is to have a copy of their IDs filed along with your copy of the 1099s. You will also need documentation to back up this filing. So, retain copies of your invoices, check stubs, and receipts for the payments.
When to File the 1099-MISC Form
The deadline to provide the form to contractors is
January 31, the year after rendered services. The deadline for filing 1099 with the IRS is:
March 31 if filing electronically (The IRS recommends E-filing for this)
February 28 if filing via paper forms
Staying on Top of Your HOA Contractors' 1099s
The end of the year is demanding for those in the association management industry. Be sure that your condo, HOA, or management company remembers to file 1099s for HOA contractors before the deadline. It may not be the first task on your mind, but skipping out on vendor 1099's could mean severe consequences for your community. Make sure you have proper documentation of everything about your contractors. Need help?
Call Condominium Associates today!
