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1099 FAQs for small businesses

Small businesses often have questions about information reporting and Form 1099, especially on similarities and differences between state and federal reporting. Here are some commonly asked questions and their answers, as well as some links to helpful Websites.

Where can I get information about 1099s?

  • Our FTB 1099 Information Returns Website answers many of your "who, what, how, and when questions about Forms 1098,1099, 5498, and W-2G.

When are 1099s due?

  • Returns filed via the Internet are due by March 31, 2007. Form 1099s filed on paper, by CD, tape cartridge, and diskette are due by February 28, 2007.

What if I filed a paper information return with the IRS?

  • If you filed paper information returns with the Internal Revenue Service (IRS), do not send a paper copy to FTB. The IRS will forward the 1099 information to FTB. Please note: This is for paper filing only.

I filed electronically with the IRS - how does that affect my filing with the state?

  • If you filed fewer than 250 returns electronically with the IRS, on tape cartridge, diskette, or CD, you must also file directly with FTB electronically on CD, tape cartridge, or diskette.

If I need to report different information to FTB than to the IRS, how should I file?

  • If you have an exception that requires you to report something differently for federal and state purposes, such as a different dollar amount, please file separately with the IRS and FTB. We prefer that you file electronically, on CD, tape cartridge, or diskette even if you have fewer than 250 of one type of return. If you must file 1099s on a paper return with FTB, please mail it to:

    Franchise Tax Board
    PO Box 942840
    Sacramento, CA 94240-6090

I'm an out-of-state filer - what should I do?

  • Out-of-state filers needed to make their California calculations, and send us a separate 1099 by February 28 - do not send us the same 1099 as you send to the IRS. For information on how to calculate the California amount see Publication 1023. [Note: This publication is obsolete as of 4/2/09.]

Income allocation

In situations where a nonresident contractor is performing services within California as well as outside of California, how does the withholding agent decide what portion of the services are provided within California?

  • Reasonable methods are acceptable. The following are examples of methods we accept:

Method 1:

  • The withholding agent asks the payee to complete Form 587, Nonresident Income Allocation Worksheet, which is used to determine the amount of California source income subject to withholding.
  • The payee completes Form 587 and returns it to the withholding agent.
  • The withholding agent uses the information provided to determine if withholding is required and, if required, what portion of the payment is subject to withholding.

Example

A withholding agent sends Form 587 to an out-of-state independent contractor (vendor) before making a payment for services. The total contract amount is $100,000.

The nonresident vendor returns Form 587, certifying that $60,000 is for services performed in California and $40,000 is for work performed in another state. The withholding amount would be:

$60,000 California source income
X 7 percent withholding rate
$4,200

Note: No withholding is required if the amount subject to withholding ($60,000 in the example above) is equal to or less than $1,500.

Method 2:

The withholding agent relies on the nature of the work to indicate where the services are performed.

For example, a construction company building a shopping center is most likely performing services where the shopping center is located.

In determining the portion, or ratio of services that are performed in California, the withholding agent should make a good faith effort to comply with withholding rules to satisfy this requirement.

Withholding agents may use other reasonable methods approved by the Franchise Tax Board. Withholding agents and vendors who need assistance in this area can contact the Franchise Tax Board's Nonresident Withholding Section at 916.845.4900.

Employment Development Department (EDD)

Any business or government entity required to file Federal Form 1099-MISC for service performed by an independent contractor, must report the independent contractor to the EDD within 20 days of either:

  • Making payment of $600 or more.

    or

  • Entering into a contract for $600 or more with an independent contractor in any calendar year, whichever is earlier.

To report an independent contractor, file online at EDD's Website at www.edd.ca.gov, or complete an EDD Form DE-542, Report of Independent Contractor(s) . For additional information, refer to the EDD publication DE-44, California Employer's Guide .

IRS

For questions about the IRS information reporting, including the Federal/State combined filing program:

Phone: 866.455.7438

Email: MCCIRP@irs.gov