State 1099 Filing Rules Explained

In this episode, Jason breaks down one of the trickiest parts of compliance: state 1099 filing rules. Every state has its own requirements — and some of them will surprise you. (Looking at you, New York and Illinois!)

What You’ll Learn

• Why the state boxes on a 1099 don’t fulfill your state filing obligations
• How to determine which states you need to file in
• Why contractor location (and where the work is performed) matters
• How state backup withholding rules differ — especially California’s
• Why some states only require 1099s if you did state-level backup withholding
• How federal threshold changes (like the move to $2,000) may not match state rules
• Tips for keeping up with changing state portals, thresholds, and requirements
• A surprising trivia fact about two income-tax states with no 1099-NEC or 1099-MISC filing requirements

Referenced Resources

• IRS Publication 1220 (Combined Federal/State Filing Program chart)

About This Podcast

Information Return Intelligence is your weekly briefing on the constantly shifting world of information return compliance — from 1099-NEC to 1042-S and beyond. Short, fast-moving, and packed with practical insights.

Transcript

Speaker1: [00:00:00] Hello and welcome to another episode of Information Return Intelligence. My name is Jason Dinesen. This is the podcast where we keep you updated on all things related to 1099 1042 SW9 anything in the information return world. Thanks so much for joining us for this fast moving weekly podcast. And this week we want to talk about state information return issues. State 1099. This is always a tricky subject to talk about because, you know, there's 50 different states. Not all of them require 1099 filings. Many of them do. And even of those though that do, it's not straightforward what you need to do in each specific state, because every state is different, Literally every state is different. But let's talk about some things that apply to all states and some tips and tricks. Things that I recommend doing to help stay on top of your state filing obligations. So you'll notice on the 1090 nines that there are state boxes. Those are really just there as a convenience for the, you know, from the IRS. The IRS doesn't use that information in anything on their side. It's there. If you print the form and you give it to the recipient, that's valuable for them to have that state information on the 1099 that you give to them. But it won't meet your state filing obligation. If you need to file in a particular state. And so you have to check each state's reporting requirements to determine whether or not you've made any reportable payments in that state.

Speaker1: [00:02:12] Now we'll touch on that in a little bit here. Like how do you know if you've made potentially reportable payments. Basically you'll need to figure out the states that you're doing business in and the states that like your independent contractors are located in. And so let's talk more about that. You need to look at the rules based on where your contractor is performing services. It is not based on where your business is located, nor is it based on where they live, although where they live and where they perform the services most of the time will probably be the same state, but it doesn't necessarily have to be. You're looking at where are they when they're doing the work. So let's say that your business is in Texas blissfully income tax free, although you do if you're a business, have Texas franchise tax to contend with. But you you don't have income tax at the state level. So Texas isn't going to worry about 1099. However, let's say you have an independent contractor working for you in Arizona. You would need to look at Arizona's rules on filing 1099 for independent Dependent contractors. Because your contractor is doing the work in Arizona. You also need to keep up to date on backup withholding rules. State backup withholding because some states, such as California, say that if you have a non-resident of California performing contract labor work in California, you have to do backup withholding in most cases.

Speaker1: [00:04:31] Now, that is a California rule. Not every state has that. But you got to be careful because remember, with backup withholding, if you don't do it when you're supposed to, you become liable for withholding. That should have been done. So states differ widely on whether or not reporting is required. And some states will say we only want 1099 if you did state level backup withholding. Now, when I was practicing, my practice was in Iowa. The state of Iowa says regarding 1099, you only need to file a 1099 with us if you did. Iowa backup withholding. And Iowa follows federal rules where backup withholding only needs done if you don't have the recipient's taxpayer identification number. So as long as you're getting w-9, you've got the taxpayer identification number, then. And you don't need to do federal backup withholding or Iowa backup withholding, then you don't need to file your 1099 with Iowa. But other states have different rules on when you do or don't need to file 1099. Some states have different thresholds as well, and so you need to watch that, especially starting next year with contract labor when the federal reporting threshold goes to $2,000. Not every state is going to conform to that. And you can bet that those state thresholds will be lower than $2,000. So you've got to watch that also.

Speaker1: [00:06:29] Now, most of you who are filing information forms are probably subject to the e-file mandate, where you have to electronically file your 1099 with the IRS. The IRS has what's called the Combined Federal State Filing program, where when you e-file, whether you're using iris or fire or you're using a third party vendor. You mark certain things that tells the IRS to forward your filing onto a particular state. Now, not all states participate. There's an IRS publication called publication 1220. That's 1220 that has a chart that shows which states are currently participating in this program. You also have to be careful because some states say they participate, but then they want you to file differently in some other way anyway. So you again have to be very careful when you're dealing with states. So some final thoughts on this. Well some final thoughts and then a little trivia note, because I always like to work in some trivia. Think of the states that you do business in and the states where your contractors are located. Those are the states that you need to look into as to what their 1099 rules are. Now, you don't need to look into it every day or every week. I don't think you even need to do it every month. But quarterly I would say just put it on your calendar to go peruse the websites of those state revenue departments and see what they're saying about 1099 filings, because things change, not just the rules on like when you need to file, but also how you need to file states, roll out new portals and such all the time.

Speaker1: [00:08:49] And I also would say this. Always talk to the applicable party. Who is the applicable party? When I say that, I mean whoever's preparing your organization's income tax returns because the presence of a contractor in another state could open up what's called Nexus, which could cause your organization to need to file an income tax return in that state where the contractor is at. Now, not always, but the applicable party, meaning whoever's preparing the income tax return needs to at least be aware that you have a contractor in some other state so that they can then look into what else do we need to do besides filing 1099 with that state? Maybe we need to file an income tax return as well. Now, I always like to work in some trivia, so here's some trivia. You know, with 1099 reporting, why do we do it? The answer is that it's tax compliance. These government agencies, whether it's the IRS or a state revenue department, they want those 1099 because they're going to keep tabs on the recipient of that 1099 to make sure that that recipient is reporting their income honestly. So when we talk about state 1099 filings, any state that does not have an income tax also then does not have a 1099 requirement because they don't care.

Speaker1: [00:10:45] They don't have any income tax. But there are two states that do have an income tax that don't require 1099 NSC or 1099 miscellaneous filings. Those two states, I will tell you, I would never guess these two states. These would be among the last choices on a if I had to make a list of what states I thought didn't have a 1099 filing requirement, these two states would be at the bottom of the list. They are Illinois and New York. I would never choose either one of those. I mean, New York would be down at the bottom, along with California on states that I would never choose. If the if the question was which states don't require 1099 filings. California would be the last choice. And then New York. But it's true. New York does not require 1099 miscellaneous or NTC filings. And neither does Illinois. All of the other states that have income taxes potentially could have a 1099 requirement. Or let me rephrase that. All of the other states do have 1099 filing requirements. That doesn't mean that you necessarily have to file in that state. It means that you might have to file. And so that'll do it for this episode of Information Return Intelligence I'm Jason Denison. We do this every week. So join us again next week for another episode.