For All Business Clients – Information Returns – New January 2001 Requirements for California Employers
By Teena A. Takata, CPA
Takata & Marzalek Inc.
Woodland Hills, CA

Starting January 1, 2001 (not so far away), all of your independent contractors who usually receive 1099MISC’s for services rendered to your firm need to be reported to the Employment Development Department (EDD) on their new form DE 542.  The contractors must be reported within 20 days of the later the date they receive payments totaling $600 or more, or the date a contract is entered into that provides for payments over $600 during the year.  The form also requests start date of contract, amount of contract, contract expiration date, and has a check box for “ongoing contract”.

This reporting requirement is similar to the requirement for wage employees, to enable the state to better locate delinquent child support payers.

Some special rules are that contractors with out-of-state addresses still must be reported to the California EDD.  Another special rule is that a business owner with no employees must still file the report, and simply uses their social security number or federal employer identification number to identify the employer.

These, and other rules are at the EDD’s website at   




Special Rules for Information Returns for Payments to Attorneys


Starting for payments made in 2001, payments made to attorneys, including settlement payments that show the attorney and client’s name, as well as payments that show only the clients name, but are delivered to the attorney’s office, also will have 1099MISC’s issued.

These 1099’s must be filed even if the recipient-attorney is a corporation.  The requirement for these 1099’s is also unique, in that the recipient is not the sole determining factor to consider when deciding whether a 1099MISC is to be issued.  In the case of these 1099’s, where a payment is delivered to an attorney’s office, and the attorney may receive a portion of that check, then a 1099 is to be issued to the attorney.

Most of our clients will not be issuing settlement payments to attorneys.  However, all attorney payments from and after $600 per year will need 1099’s issued for year 2001 payments, even where the law firm is a corporation and previously did not receive a 1099.  Our clients who are attorneys should expect to be asked for their tax identification numbers frequently for payments being made to them in 2001, and should not object when they receive 1099’s show settlement amounts as well as the legal fees.

These rules were originally supposed to be in effect for the year 2000, but were postponed to first be effective for payments made in 2001.

If a law firm splits a fee and pays another law firm part of the fee, they should issue a 1099MISC to that firm representing the amount of the legal fee paid to the other firm.

The final item to note in this area is that, since “all 1099MISC” recipients are to reported to the EDD under their new reporting rules for 2001, you will need to ensure you include your law firm on the EDD reports!

By Teena A. Takata, CPA
Takata & Marzalek Inc.
Woodland Hills, CA

Please note, the information above is subject to change, and by January 1, 2001, we may have further postponements, or changes to the rules shown above (especially for the attorney 1099MISC reporting rules).  Please consult with your tax advisor and/or the EDD for updated information.

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Last modified: November 08, 2002