One consultant for whom we will be preparing a 1099 says only to report our payments for his professional services—not for his travel expenses, which we have reimbursed. Is this correct?

Follow

Whether you report expense reimbursements made to independent contractors, directors and consultants for whom you file 1099s depends on whether the vendor or director accounts for his or her expenses to you.

You are not required to include reimbursed expenses on a vendor's 1099 if the contractor has accounted for those expenses by providing you documentation of those expenses under an accountable plan as defined by the IRS.

You are required include reimbursed expenses on the 1099 if the vendor does not separately account for the expenses (in which case the vendor may claim a deduction for its business expenses on its own tax returns).

Examples:

  • If a contractor invoices you $2,000 for services and $1,200 for expenses ($3,200 total), and supplies documentation for the $1,200 expenses, you report payment of $2,000.
  • If a contractor invoices you $3,200 and does not account for expenses, you report $3,200.

As the example shows, the contractor may bill you total cost and not account to you his expenses. In such case you report the total payment. Another way to say it: You report all payments to the contractor, except accountable, documented expense reimbursements.

See Chapter 13 for information on Accountable and Non-Accountable Plans in IRS Publication 535, Business Expenses.

Have more questions? Submit a request

Comments