Internal Revenue Service Form 1099-NEC is a tax form used when a business or organization pays an independent contractor more than $600 during the course of the tax year. The tax rules governing when you have to issue a 1099-NEC to an attorney can be difficult to apply, and you should talk to a tax professional if you need tax advice or assistance.
Businesses Vs. Individuals
The IRS requires businesses and organizations to report payments made to independent contractors and service providers, including attorneys. However, individuals are generally exempt from this requirement unless they hire the attorney or law firm in the course of their business.
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For example, if you hire an attorney to defend you against a traffic ticket, you don't have to issue the attorney a 1099. If, on the other hand, you are a sole proprietor and hire an attorney to sue another business that owes your business money, you may have to provide the attorney a 1099.
Consider also: About the Different Types of 1099 Tax Forms: What You Should Know
Time and Amount
The 1099-NEC reporting requirements only apply to businesses or organizations, and only in specific conditions. A business has to provide an attorney or law firm a 1099 if the business pays that attorney more than $600 for legal services in the same calendar year. If, for example, a business pays a law firm $500 one year and $500 the next, the business is under no obligation to provide the 1099, even if paying the same attorney.
Reporting requirements apply to payments made to firms, partnerships, corporations and individual attorneys. It does not matter how the attorney structures their business – if you paid them more than $600 in the calendar year, you should provide a 1099-NEC.
Specific Information to Provide
There are various types of form 1099, and the one you need to fill out for lawyer's fees is Form 1099-NEC. This form is used to report all non employee compensation separately from other types of miscellaneous income.
Form 1099-NEC requires the business that made the payments to include specific information when providing the form to a legal services provider. The form requires the payer to include its name, Employer Identification Number as well as the recipient's name and employer identification number. The taxpayer has to include the total amount of fees paid to the attorney in Box 1 "Nonemployee Compensation."
The filing date with the IRS is January 31. You should provide a copy of the form to the lawyer by February 1.
Consider also: What Is Form 1099-NEC?
Exceptions to 1099 Legal Fees
The IRS reports that the 1099 rules do not apply to legal payments in some situations. If the wages paid to attorneys are reportable on Form W-2, the business does not need to make a separate record of the payment on form 1099. Also, profits distributed by a partnership to any of its partners, that are also reportable on schedule K-1 through forms Form 1065 or 1065-B are also exempt from the 1099 requirements.