Because the IRS has made such a sweeping change in regard to who should send and receive 1099-MISC forms, it’s important to understand those changes and how they might affect you.
Who Should Send a 1099-MISC Form?
If you make certain payments as a function of your trade or business, you must prepare 1099-MISC forms to show the amounts you have paid to others during the year. The IRS considers a “trade or business” to include:
An entity you operate for gain or profit A non-profit organization, including 501(c)3 and (d) organizations A trust of a qualified employer pension or profit-sharing plan A non-exempt farmers’ cooperative A widely held fixed-investment trust
Who Should Receive a 1099-MISC Form?
To prepare a 1099-MISC form, ask payees to complete and sign a W-9 form, which will include their taxpayer ID information. If the taxpayer ID is missing or incorrect, the IRS will reject the form. Prepared forms must be given or sent to your payees and filed with the IRS. You must send and file a 1099-MISC for certain types of payments of $600 or more you make during the year. Below that threshold, you typically do not need to report the payment.
Rents
Rents are reported in the 1099-MISC form’s box 1 and should include:
Payments for renting or leasing office space, but not payments to real estate agents or property managersMachine rentals. If the machine rental includes a payment to the operator of the machine, divide the payment between the machine provider and the operator. You’ll report the payment to the machine operator on 1099-MISC and the operator’s payment on Form 1099-NECPayments to owners of coin-operated amusementsPasture rentals
Prizes and Awards
Prizes and awards include monetary prizes and the fair market value of merchandise you awarded to someone would be reported in box 3 of the 1099-MISC form. This would include sweepstakes winnings, for example, but not proceeds from a wager or gambling winnings from a casino.
Medical and Health Care Payments
You must report payments your business made to doctors, suppliers, or providers of medical or health care services in box 6. This includes payments to medical health care insurance companies. You don’t have to report payments to pharmacies for prescription drugs. You don’t usually have to report payments to corporations, but you must report payments to corporations if they are providers of medical or health care services. Be sure to list the corporation as the payee, not an individual.
Payments to Attorneys
Use Form 1099-MISC, box 10, to report gross proceeds of $600 or more paid during the year to an attorney or law firm, including payments to corporations. Gross proceeds aren’t fees for an attorney’s legal services; they are amounts paid in other ways, like in a lawsuit settlement agreement, for example. Use Form 1099-NEC to report payment of attorney fees for services.
Miscellaneous Income
Use box 3 to report other payments of $600 or more. Some examples of miscellaneous payments are termination payments to former self-employed insurance salespeople and payments of damages from a lawsuit.
Exceptions to the $600 Annual Minimum
In a few rare cases, the $600 annual minimum does not apply. You should report money paid in the following instances no matter how low the amount.
Royalties
You must report royalties in box 2 if you paid the recipient at least $10 during the year. Royalties are payments to owners of property for use of that property. Examples are intellectual property (copyrights, patents, trade names, and trademarks) or oil, gas, and other mineral properties.
Backup Withholding
Backup withholding orders are orders you receive from the IRS requiring your company to withhold income taxes from payments you make to a payee. You must report all backup withholding amounts for anyone for whom you have withheld income taxes under a backup withholding order, even if the total is $600 or less. If the backup withholding is for a nonemployee, use Form 1099-NEC to report these payments.
Who Should Not Receive a 1099-MISC?
Don’t use Form 1099-MISC to report wages paid to employees. Use Form W-2 for all payments to employees, including business travel allowances and expense reimbursements. Use form 1099-NEC to report payments to independent contractors. In general, you don’t have to report payments made to corporations, including LLCs taxed as corporations, but there are some exceptions. You don’t need to report payments for merchandise, telegraphs, telephone, freight, storage, and other similar items.
When and Where Do I File 1099-MISC Forms?
Your 1099-MISC forms are due on February 28 following the tax year to payees and the IRS. The due date may fluctuate due to holidays and weekends. For example, if February 28 falls on a Sunday, the due date would be the next day. If you file these forms electronically with the IRS, you have until March 31 to file, but the February 28 deadline remains the same for payees. The best way to file 1099-MISC forms with the IRS is to file electronically using the IRS File Electronic Returns Electronically (FIRE) system. If you file 250 or more 1099-MISC forms, you must file electronically. You can also file a printed 1099-MISC.
The Bottom Line
The IRS regulations for Form 1099-MISC are complex, and every business situation is unique. It’s essential to seek out the services of a qualified tax professional or use tax preparation software to prepare the 1099-MISC.
How Do You Correct a 1099-MISC Form?
Fill out a new 1099-MISC form with the correct information and mark the “corrected” box on the form. File the corrected form electronically or by mail.
Where Do You Get a 1099-MISC Form?
You can order hard copies of 1099-MISC forms from the IRS or file them electronically via the IRS FIRE system. You may also print them out from the IRS website.
What Goes on a 1099-MISC Form?
Include the following information on a 1099-MISC form:
Your name, address, and TINName, address, and TIN for the payeeThe amount you paid in the box that corresponds to what the payment was for
