It’s January and every seasoned Accounts Payable employee knows that this special month brings the mother of all deadlines: January 31. This deadline is for the submission of vendor 1099s and W2s. These are the fastest turnaround deadlines within the IRS guidelines. I’m sure there are plenty of tax accountants out there who would argue that there are more important deadlines, but as an AP Manager, I say nay nay. 31 days is one heck of a feat, but AP & Payroll departments meet this deadline every year.
1099s are a tax document in the United States. There are many kinds of 1099s. Most allow submission extensions for companies but the one which has no flexibility is the 1099 NEC or non-employee compensation. If you have a side hustle, you will most likely get a 1099 with details of your compensation for the year. A freelancer or a contractor will have seen these documents and used them to file taxes. An individual, partnership, or limited liability company paid more than $600 throughout the previous year will receive a 1099. Oh, and by the way, get it wrong and there are fines involved.
In other words, you have 31 days to create tax documents for your vendors and submit all the data to the IRS via their website while also keeping up your new year’s resolution of reducing your alcohol intake and increasing your kale salads. I’ve decided to start my “new year” on the first day of Q2, because last year the kale salads didn’t go over very well, not something I recommend starting January 1.
This may sound daunting, but if your AP department has obtained W9s of all vendors, and has correctly documented all payments to vendors, there is a high probability that your IT group can pull raw data from the ERPs data tables and present you with clean and beautiful information to send along to the nice people at the IRS.
What? You aren’t sure if you have all W9s for all your vendors? You’re not sure if your data entry team has been entering invoices which should be flagged as 1099? Well, you are not alone! Many AP departments find themselves waking up January 1 to pull invoice data, clean up vendor inaccuracies, create paper copies of 1099s for vendors, upload data to the IRS website, and try to understand how you don’t remember this from last year.
The best way to battle this yearly pain point is to proactively have the correct data on hand when creating a vendor, understanding what the vendor is doing with your company, and ensuring data entry team understands how their work may impact January. That means your vendor master must be as clean as possible. Every name, TIN, and address must be as correct as possible in your vendor master, and it should be the first set of data to review when starting in a new AP department.
W9s and W8s are your best friend, having a clear process and standardization for vendor creation confirms your department is doing its due diligence, and always do a mid-year check in. Those mid-year check ins can help reduce the time spent in January so you can get back to focusing on your new year’s resolutions.
As an aside, don’t think you’re out of the woods if you’re outside of the US. There are many countries who require tax documents for non-employees just after the new year. Some include: T4A in Canada and e109 in Austria. If you are a US company who have paid vendors overseas, there are also tax documents required by their own tax authorities.
Let’s just focus on the US 1099s for now. February 2 sounds like a great time to start digging into 1042-S. Groundhog day seems like the appropriate time to revisit international tax requirements, because it’ll feel just like January 1.
Happy new year!
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