1099’s for HOA contractors should be near the top of your end of the year to-do list. For one, 1099’s for HOAs are often overlooked on the mad dash to wrap up the fiscal year. This can come and bite you hard later, so make sure you have your 1099-MISC tax forms in view as you prep your contractor payments.
1099’s for HOA Contractors: Understand the Process
Your HOA earns income from association dues, and they also use these funds to pay expenses and salaries. So, just like any regular business entity, your HOA needs to file taxes.
During this busy time of year, HOA boards and management company employees are scrambling 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 that are 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 such a blessing during these times. In most cases, the management company can take care of most of the process of filing the 1099’s for you. In fact, they will most likely be able to deal with the rest of the tax filing tasks as well.
However, it’s still important for an HOA board to at least be familiar with the process of filing the 1099’s. That goes for the rest of the tax forms your HOA needs to complete as well. 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 that they complete all the forms and you don’t forget anything.
Why the Need to File 1099’s 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.
Things like 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 write-off certain expenses from their tax bill, too. So, there’s a potential to reduce the amount of tax your association needs to pay. One way to document expenses is with the Form 1099-MISC.
To write off the expense of hiring someone, the HOA just needs to send out a Form 1099-MISC to that person. Then the HOA just needs to file that properly, and the association can offset the taxes they owe for that amount. Fewer taxes paid out means more money retained by the HOA. It’s just sound fiscal practice.
What Is a 1099-MISC Form?
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, it’s meant to 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, either as a condominium or homeowners association, hires an independent contractor. However, you will only need it if your association paid the contractor over $600 during the course of the year.
For payments over $600, the association needs to file a 1099-MISC form with the Internal Revenue Service. The association must also provide the contractor with the form as well.
These independent contractors often include HOA attorneys and landscapers, among other vendors. Also, in addition to the $600 cutoff amount, the following must hold true for your 1099-MISC filing to be valid.
- The payments must be for services only. The form is not applicable if the HOA is buying 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 are providing services to the association, rather than selling products.
As long as these conditions are met, the payments fall under non-employment compensation by the IRS. This means that the association now needs to send a 1099-MISC to the contractor and to file a copy with the IRS. So, if you are unsure about whether or not your association needs to provide a 1099-MISC to a particular vendor, the safest bet is to ask the HOA’s accountant.
What Do You Need to File 1099-MISC Forms?
To file 1099-MISC forms for contractors, you will need their Tax ID number 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 1099’s. You will also need documentation to back up this filing, too. So, make sure to retain copies of your invoices, check stubs, and receipts for the payments as well.
When Do You Need to File Them?
The deadline for providing the form to contractors is January 31st of the year after services were provided. 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
Stay on Top of Your 1099’s for HOA Contractors
The end of the year is a demanding one for those in the association management industry. So, be sure that your condo, HOA, or management company remembers to file 1099’s for HOA contractors before the deadline is up. It may not be the first task on your mind, but skipping out on vendor 1099’s could mean serious consequences for your community. So, make sure you have proper documentation of everything about your contractors.