Landlords Association of Arkansas clears up confusion
Well, it seems that both the federal Patient Protection and Affordable Care Act (i.e., health care reform) and Small Business Jobs and Credit Act are causing some confusion.
One could dedicate a lifetime trying to clear up all the confusion created by those two massive acts, but we’re interested in just one issue today — 1099 reporting requirements as they pertain to landlords. A 1099 form, quite simply, is what the IRS requires businesses to file when they make payments to certain individuals for services totaling more than $600.
For a classic example of how all that works, just think of independent contractors. Regular employees have taxes withheld by their employers and their wages, salaries and tips are reported to the IRS by way of a W-2 form. Independent contractors, of course, are different — they do work, but the businesses hiring them for jobs don’t withhold taxes, unemployment insurance or Social Security contributions.
No, the independent contractor must take care of those withholdings on their own and the federal government knows how much money they’re received for their services through 1099 forms.
So, what’s changed with 1099 forms? Simply put, those came into play when a business was dealing with an independent contractor who was not a corporation. Let’s say, for example, we’ve got Fred’s Dandy Lawn Care, Inc. landscaping a landlord’s propoerty for a total project cost of $1,000. Prior to this year, no 1099 form was filed to report that income — Fred is a corporation.
Let’s say, further, we’ve got Jimmy, the kid next door with a lawn mower. Jimmy mows his neighbor’s yard all summer long and receives a total of $1,000 for his work. That income must be reported on a 1099.
The difference this year is that payments from landlords for services to independent contractors must be reported, regardless of whether the provider is a corporation or not. That’s a significant change.
So, why did we start out mentioning landlords? Because that “corporation exclusion” has been removed this as it applies to their transactions this year and it will be removed for everyone else next year. Also, because the Arkansas Realtors Association (ARA) reported last week that all landlords must file 1099 forms to report income received from tenants. That news was relayed to about 20 publications here in Arkansas, thus causing a lot of confusion.
Confusion? Yes, indeed. According to the Arkansas Landlords Association, the ARA report is flat wrong. Commercial tenants must file 1099 forms to their landlords, but that’s not the case for residential ones.
It’s likely we’ll see more confusion this year as the full extent of the new 1099 requirements are hashed out by landlords who have to deal with them. And, remember — those reporting requirements are due to expand again in 2012 (i.e., they apply to payments for services now, but are due to expand to also cover money paid for goods totaling more than $600).
Benton resident. Rogue journalist. Recovering attorney. Email = Ethan@FirstArkansasNews.net.