Ultimate Guide to 1099s in Dynamics 365 Finance & Operations
Processing 1099s correctly and efficiently can be tough. But in this article, I’ll show you step-by-step how to handle all the most important aspects of 1099s in Dynamics 365 Finance & Operations:
- Set Up a Vendor for 1099s
- Mark Past Transactions as 1099 Reportable
- Mark Invoice Partially 1099 Reportable
- Review 1099 Minimums
- Check for Duplicate Taxpayer Numbers
- Review and Adjust 1099 Information
- File 1099s with the IRS
I have presented these processes in the order that I generally recommend users go through them. But if you have a specific need right now, just click on any item in the table of contents above to jump to the instructions for that process.
Also, you can click on any screenshot in this article to see a larger version.
Be aware that the IRS has made changes to 1099 forms, but Microsoft has updates for Finance & Operations to handle it. Read the details and make sure you are updated.
If you’re using Dynamics AX, check out How to Process 1099s in Dynamics AX instead.
Note: Even though most customers, commentators, and consultants still call it Dynamics 365 Finance & Operations or D365FO, Microsoft now technically licenses it as Dynamics 365 Finance and Supply Chain Management.
These instructions require the following user roles (aka security roles):
- Accounts Payable Manager – for vendor maintenance and setup
- Accounting Manager – there are many roles but this one crosses over all forms shown here
How to Set Up a Vendor for 1099s in D365FO
- Open the vendor’s record. (You can select your vendor after you navigate to Modules > Accounts Payable > All Vendors).
- Expand the Tax 1099 fast tab within the vendor record.
- Select “Yes” for Report 1099.
- Enter the Federal tax ID.
- Choose from the list of available Tax ID types.
- Choose from the list of available 1099 boxes.
- If the organization is owned outside of the USA, select the Foreign entity indicator.
- Select the Second TIN checkbox if you were notified by the IRS twice within 3 calendar years that the payee provided an incorrect taxpayer identification number (TIN).
- Select from the list of available choices in the Name to use on the 1099.
- Enter the DBA if applicable.
- Enter the alphanumeric name control ID that the IRS requires to be printed on the mailing label to help validate the vendors EIN in Name control.
- To set up state 1099 information, go to the Action Pane within the Vendor tab, and under Set up, select Vendor state tax IDs.
- From here, enter the information in this form:
The above setup makes all transactions for the vendor default to 100% reportable for 1099.
Mark Past Transactions as 1099 Reportable
If you want to tag past transactions for 1099 reporting, use the Update 1099 button inside the Tax Information section at the top of the vendor record.
(You can get to that vendor record through Modules > Accounts payable > All Vendors.)
Note that the Update 1099 button updates all records. This function is very useful for tagging transactions for a vendor that you missed initially setting 1099 on. If you have already tagged records as only partially 1099 reportable on this vendor, this will retag all records as 100% reportable, so use this function with care.
To review past 1099-reportable transactions, press the Vendor settlement for 1099s button just below the Update 1099 button. That shows what records Dynamics 365 already has marked as reportable for this vendor. This is the same form accessed from the Vendor settlement for 1099s all vendors view, explained further below.
Mark an Invoice Only Partially 1099 Reportable
After a vendor is set up with 1099 information, all your invoices naturally default to 100% 1099 reportable. If we want to only partially tag an invoice amount as 1099, follow the procedure below:
- Enter the invoice as usual (the amount is #1), then click the 1099 tab.
- Fill in the amount subject to 1099 (note the negative sign for regular invoices).
- After the invoice is paid, we can see that the proper reportable amount is shown.
How to Review 1099 Minimums in D365FO
These minimum reporting amounts rarely change, but Finance & Operations has a screen for you to review and adjust these. To get there, navigate to Modules > Accounts payable > Periodic tasks > Tax 1099 > 1099 fields.
Verify with IRS documentation that the Tax 1099 field minimums are correct in Dynamics 365.
The minimum amounts can be adjusted to a higher or lower amount. For each vendor, Dynamics 365 will issue a 1099 when the amount paid in a tax year exceeds the minimum for the tax year for the 1099 type.
How to Check for Duplicate Taxpayer Numbers in D365FO
To find out if two vendors are using the same taxpayer number on their vendor record, navigate to the Tax 1099 duplicate taxpayer identification report.
Then you’ll be able to choose the destination for the report (screen, printer, email, etc.), the filters and date, and whether to run it in the background.
How to Review and Adjust 1099 Information
There are two main review reports for 1099s within Dynamics 365 Finance & Operations: the Vendor settlement for 1099s summary view (showing 1099 info by vendor) and the Tax 1099 detail report (showing invoice info details by vendor).
You can navigate to both options through Modules > Accounts payable > Periodic tasks > Tax 1099.
Vendor Settlement for 1099s Summary View
Below is a screenshot of the Vendor settlement for 1099s summary view. This form has four important functions, each of which we can access by clicking one of the four main buttons across the top.
Vendor 1099 transactions. Use this if you want to adjust specific transactions (because they may not be 1099 reportable in full) for a vendor.
Select a vendor from the list and then click the Vendor 1099 transactions button in the top left of the screen. That opens a Tax 1099 transactions form.Then select a transaction and use the Edit button in the top left to adjust any of the settled amounts.
Manual 1099 transactions. Use this if you want to create a reportable transaction on a vendor that happened outside of Dynamics 365 processing. This can be used for data migration (to capture legacy transactions prior to cutover) or to record activity from GL/another system that we want to report on from Dynamics 365. This button opens a Tax 1099 transactions form.
Click the New button near the top left of this screen to add a 1099 record.
- Create export file. This lets you create the relevant file for the IRS. See details.
- Print. Unsurprisingly, you use the print button to print the vendor forms so that they can be mailed.
Tax 1099 Detail Report
This report is used to review, in detail, 1099 reportable amounts by vendor. Choose your parameters, destination, records to include, and whether to run it in the background.
The results will look like this:
How to File 1099s with the IRS for Tax Year 2021
Before you start the process, you should know that the IRS has yet again made changes to forms for tax year 2021. If your system administrator has already installed the latest D365FO service update, you can jump to the steps to filing 1099s with the IRS.
Otherwise, you should review the following details.
IRS Changes and Microsoft Updates
- The IRS has made changes for tax year 2021 to form 1099-NEC (3 forms per page instead of 2 previously) as well as added box 11 to form 1099-MISC and various other check boxes and electronic reporting changes.
- This means that last year’s update from Microsoft will not work for this year’s 1099 printing nor electronic reporting. The good news: The Vendor Settlements for 1099 Report (AP –> Periodic) will be correct as long as your 1099 boxes were configured correctly.
- If you are running on D365FO, Microsoft has incorporated the 1099 fixes for 2021 in the latest service updates for platforms 10.0.21 through 10.0.24 available for download in LCS.
- It is highly recommended that you have your system administrator install the latest service update in order for your accounting department to be able to complete the tedious process of scrubbing and verifying the information for 1099 reporting in January. A lot of frustration can be prevented by installing the quality update proactively rather than at the last minute before the filing deadline.
- If you are on Dynamics AX, see our details and guidance about 1099s and the IRS changes for AX.
Steps to File 1099s with the IRS via D365FO
- Go to the Vendor settlement for 1099s form. (You can navigate there through Modules > Accounts payable > Periodic tasks > Tax 1099 > Vendor settlement for 1099s.)
- Click the Create export file button:
- The first time you do this, you will need to click “no” to indicate to Dynamics 365 that you are filing these forms directly from the software (no 3rd-party ISV vendor is required, but we need to mark this).
- Press Recheck for errors to return to the previous screen.
- Assuming you now have no validation errors, now Create export file opens the file production program.
You can create a test file, which is recommended if you have never filed electronically with the IRS in the past. Because test files may take some time for the IRS to process, you should work through any file testing in advance of the filing deadline.
Notes on 1099 Processing and Year-End Activities
Generally, 1099s are ready to process when all payables are paid through check date 12/31 of the year to be reported. 1099s are issued to any vendor who received a check dated during the year reported; 1099s are contingent upon check date, not invoice date.
The paper form to the vendor should be mailed by January 31st of the following year. The electronic file of 1099 payments is due to the IRS by the last day of February of the following year (the 28th or 29th). The reason for the time between issuing the vendor form and transmitting to the IRS is to allow for any errors pointed out by vendors to be corrected prior to filing the 1099 information with the IRS.
You may also be interested in the following:
- How to do financial reports in D365FO
- The Tax 1099 report 2021 changes for D365FO
- Microsoft’s general ledger year-end close documentation
- Microsoft’s year-end 1099 reporting documentation
If you have any questions about handling taxation and reporting correctly and efficiently in Dynamics 365 Finance & Operations, please contact us.
Do you have questions about all the different terms in D365FO? Check our glossary of the most commonly asked-about terms, with definitions and examples.