Who Files a Form 1099 for Tenants, Landlords, and Property Managers?

The Internal Revenue Service (IRS) utilizes Form 1099 to capture income that might not be reported. While an independent contractor is required to honestly report all of his or her earnings, the IRS relies on Form 1099 to help verify the required income reporting information.

Current tax law defines receiving rental income as conducting the trade or business of renting out property, subject to Form 1099 reporting requirements. If you are a tenant, landlord or property management company, you may be unclear about when to send or receive IRS Form W-9 and whether to file IRS Form 1099.

What are IRS Forms 1099 and W-9?

Form 1099 is used to report income from self-employment earnings, interest and dividends, etc. The party actually making these payments is the one responsible for filing this form. For example, if a business makes payments for services performed by independent contractors or other non-employees, they must file a 1099 to report those earnings.

Form W-9—Request for Taxpayer Identification Number and Certification—is a commonly used IRS form. If you have your own business or work as an independent contractor, a client may request that you fill out and send a W-9 so they can accurately prepare your 1099-NEC form and report the payments they make to you at the end of the year.

What are property management requirements for 1099s and W-2s?

In the real estate industry (and in particular, property management), specific scenarios determine when and how these forms are used.

If you are a lessee, lessor or manager of property for trade or business, here are a few guidelines to consider:

•  Tenants. Tenants in commercial leases (and in residential leases where operating a trade or business from the property) paying a landlord more than $600 annually should ask for a W-9 from the landlord before paying them. If the W-9 shows that your landlord is not taxed as a corporation, you are required to file Form 1099.

•  Landlords. If a commercial tenant pays you over $600 of rent annually, you must supply your tenant with your Form W-9. You will then receive a Form 1099 form reporting the rental income you received.

If you use a property manager, you will need to file a Form 1099 for their service fees (not including reimbursed expenses). You must also supply a form W-9 to the property manager. The property management company will be responsible for issuing 1099s to all contractors they have hired to maintain your property.

•  Property management companies. A property manager must obtain a Form W-9 from the landlord and file Form 1099 to report rent paid in excess of $600 during the tax year. Property managers must do the same for all contractors not taxed as corporations that were hired and paid in excess of $600 over the course of the year.

In any case, failing to file the proper forms can get very expensive. So it’s important to understand your obligations.

Can I refuse to file a W-9 or 1099?

If the IRS requires these forms, there’s no option to refuse. However, there are exceptions to the rules applying to property management:

• If a corporation owns the rental property, a Form 1099 form is not required.
• The filing requirements do not apply to credit card payments and PayPal as these payments are being reported by the card issuers and third-party payment networks.
• If you are a commercial tenant and pay less than $600 of rent throughout the year, you’re not required to submit a W-9 to your landlord.
• If you pay rent to a real estate agent or property management company instead of directly to a noncorporate landlord, your expense is not subject to Form 1099 filing requirements.

There are other complicated nuances of Form 1099 that may create exposures or exceptions, depending on the type of contractor you pay.

What should I do now?

Before you issue any payments to independent contractors and service providers, have them complete and sign the IRS Form W-9. When properly completed and signed, Form W-9 will indicate when the Form 1099 is required. This also ensures that you have the necessary documents required for your annual filing.

Form 1099-NEC (nonemployee compensation) must be mailed to recipients and filed with the IRS by Jan. 31. All other income is reported on Form 1099-MISC and must be mailed to recipients and filed with the IRS by March 31.

Depending on the volume of properties, this filing process can become a challenge for landlords and property managers. A CPA familiar with tax filing requirements in the real estate rental industry can help organize and streamline the process to ensure you don’t miss any important due dates.