Startup founders, as you embark on making sure your tech company is compliant with all of its tax obligations in 2024, a host of deadlines are upcoming for you and your finance team to navigate which involve information returns (W2s, 1099s, and other reporting).
For 2023, the threshold to issue a 1099-NEC remains $600 for payments made in the calendar year 2023. You must issue a 1099-NEC to the following:
- Services performed by someone who is not your employee (including parts/materials) – (box 1)
- Payments to an attorney (box 1)
If you just started your tech company in 2023, it’s great practice for you as a business owner to start collecting a W9 form (link) from all contractors your business decides to work with. This would include any software developers who are not employees, graphic designers, lawyers, accountants, and any other vendors your company begins to work with. The W9 is a one-page form that collects basic information about the vendor you are paying. This includes name, address, federal tax classification (Sole Proprietor, C-Corp, S-Corp, Partnership, etc.), and the social security or employer identification number. This information is then used to prepare the 1099’s.
For those founders who have dealt with issuing 1099’s, ensuring that the W9 forms you have collected from your contractors are up to date is critical. Most of our tech clients use payroll/PEO services like Gusto, Justworks, or Rippling to pay their employees and contractors. Although these services will issue 1099’s for any payments made through their platform, they won’t include any payments made outside of it. This means that analysis will need to be done to review any additional vendors you may have paid via wire transfer or ACH during the year.
For tech companies, we find that this often is the case for payments made via bill.com and large wire transfers to law firms when a fundraising round (Seed, Series A, Series B, etc.) has closed.
Important Deadline for 1099-NEC for 2024:
| Filing Copy: 1099-NEC | 2024 Due Date |
| Recipient Copy | January 31st, 2024 |
| IRS eFile | January 31st, 2024 |
| IRS Paper Copy | January 31st, 2024 |
Below is a copy and link to the 1099-NEC form for 2023.
For the tax years 2020 and prior, the 1099-MISC forms were used instead of the 1099-NEC; however, the 1099-NEC is now used exclusively for contractor payments.
Your company may still have a requirement to file 1099-MISC forms if you pay for any of the following payment types.
- Rents (box 1);
- Prizes and awards (box 3);
- Other income payments (box 3);
- Generally, the cash paid from a notional principal contract to an individual, partnership, or estate (box 3);
- Any fishing boat proceeds (box 5);
- Medical and health care payments (box 6);
- Crop insurance proceeds (box 9);
- Gross proceeds paid to an attorney (box 10)
- Section 409A deferrals (box 12); or
- Nonqualified deferred compensation (box 14).
The following thresholds apply.
- Greater than $600 payment.
- At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest
The tax deadline for 1099-MISC is generally January 31st, with a few exceptions. More detailed information can be found directly on the IRS website. See link.
Paying Foreign Contractors
If your tech company is paying foreign contractors, it may help to understand whether any income could be considered U.S. Source income. It’s helpful to have all your foreign contractors complete Form W8-BEN to ensure compliance with tax treaties and 30% foreign withholding requirements. Depending on the type of entity you are paying overseas, various W8 Series forms may apply. See link here for more information. A 1042-S may need to be issued to foreign vendors where withholding is required. See more details here.
Incentive Stock Option Exercises
If your startup had ISO (Incentive Stock Option) exercises during the year, these would also need to be reported on Form 3921 by January 31st, 2024 to recipients and April 1st to the IRS if e-filing – Deadline for Paper Copy is February 28th, 2024. Some services like Carta may offer assistance with preparing these forms; however, it’s your company’s responsibility to make sure they are filed on time.
Non Qualified Stock Options (NSOs)
If your tech company needs to report any exercised 83, (b) non-statutory stock options, these will need to be reported on Form W2 (Box 12, code V). There is a helpful Gusto article that explains this in further detail.
New for 2023 – IRIS System
Startups have a new option to e-file 1099’s through the IRS IRIS Taxpayer Portal. This free, web-based filing system lets you:
- E-file up to 100 returns at a time
- Enter manually or by .csv upload
- Download payee copies to distribute
- Keep a record of completed, filed and distributed forms
- Save and manage issuer information
To use the IRIS Taxpayer Portal, you need an IRIS Transmitter Control Code (TCC). This 5-digit code identifies your business when you e-file forms. It can only be used for IRIS.
Apply for an IRIS Taxpayer Portal TCC
More information is linked here.
If your Startup already uses a payroll provider like Gusto/Justworks to help with 1099’s it may be best to double check whether IRIS would be needed as it may create duplication of forms filed which will create more tax issues for you and your contractors. Currently, the IRIS system only supports the filing of 1099’s and all other form types would need to be filed through the IRS already established FIRE System.
What about 1099-K Requirements?
1099-K requirements have been shifting lately. The IRS intended for Third-Party Settlement Organizations (TPSOs) like Stripe, Venmo, Cash App, etc. to start issuing 1099-K forms for amounts above $600. That rule has been updated.
For 2023 – there will be no change to the 1099-K requirements.TPSOs will only issue 1099-K forms to companies where the annual gross payments exceed $20,000 and 200 transactions.
For 2024 – the rules as they currently stand will be updated to Annual Gross Payments exceeding $5,000 and ANY number of transactions.
For Startup founders we commonly see them setting up Stripe accounts initially with their own Social Security Numbers, and they end up receiving 1099-K forms which are intended for their tech companies. It’s extremely important to keep your Stripe accounts updated with your Startup’s tax ID numbers so that these forms are issued to the correct entity and do not create tax notices for you or your co-founders personally.
Talk to your Accountant
Working with a trained professional will help you manage the various deadlines and reporting requirements. As ever, we love working with founders to help take away the pain of onerous reporting requirements, so feel free to reach out if you have any questions.