Businesses Face New 1099 Requirements in 2024

Businesses across the country are facing changes to their 1099 filing process this year. The IRS now requires companies that pay 10 or more independent contractors (ICs) to file 1099s electronically. This rule previously applied only to companies paying 250 or more ICs. Filing incorrectly will result in a $290 penalty per 1099.

For New York businesses, the new “Freelance Isn’t Free Act” will necessitate additional changes as of May 20, 2024. The Act requires every business in the state to enter into a written agreement with any IC (“freelancer”) who:

  • Provides services with a value of $800 or more; or
  • Provides services that, when combined with prior agreements between the parties in the preceding 120 days, have an aggregate value of $800 or more.

The written agreement must contain all of the following information:

  • Name and address of hiring party and freelancer
  • Itemization of all services to be provided
  • Compensation rate and method
  • Date on which the freelancer will be paid, or an explanation of how that date will be determined*
  • Date by which the freelancer must submit invoices or other list of services rendered

*If not specified in the agreement, the payment date must be no later than 30 days after the completion of services.

In addition to providing a copy of the written agreement to the freelancer, the hiring party must retain a copy of the agreement for six years.

Definitions & Exemptions

Under the Act, a freelancer is defined as a person or organization composed of no more than one natural person that is hired to provide services in exchange for $800 or more (in a single contract or aggregated contracts within the preceding 120 days).

Sales representatives, attorneys, licensed medical professionals and certain construction contractors are exempt under the Act.

Prepare for Compliance

All written agreements must be entered by May 20, 2024. Follow these steps to ensure timely compliance with the Act:

  • Review your existing IC relationships to determine which ones exceed the $800 threshold.
  • For freelancer contracts not exceeding $800, review services provided by the freelancer in the prior 120 days.
  • Train appropriate employees on how to enter into freelance agreements moving forward.

The Act imposes up to $25,000 of injunctive relief and civil penalties for repeated noncompliance. Freelancers who file a complaint alleging non-payment may be entitled to double damages, injunctive relief, attorney fees and other remedies.

Grassi’s Tax Advisory team can help you avoid the financial and reputational risks associated with noncompliance. Reach out to your Grassi advisor or Ronald Eagar, CPA, CCIFP for assistance with identifying applicable ICs, drafting written agreements and maintaining a strong 1099 compliance program.

Ronald J. Eagar Ronald J. Eagar is the President of Grassi & Co. Certified Public Accountants, PC and is a member of the firm’s Executive Committee. He offers more than three decades of experience in both public and private accounting. Ron’s expertise extends beyond the traditional areas of accounting and taxation and he serves as a comprehensive business advisor to all his clients. He serves as a... Read full bio

Categories: Tax