Form 1099-Misc

What is 'Form 1099-Misc'

There are many different 1099 forms for different types of non-employee compensation, or income that is not a wage, salary or tip.  These forms all serve the same general purpose, which is to report income to the Internal Revenue Service (IRS). Taxpayers receive 1099s at the end of the tax year when they receive any type of non-employee compensation,  for example distributions from profit-sharing or dividends from your broker. 

BREAKING DOWN 'Form 1099-Misc'

The IRS refers to variants of the 1099 form as Information Returns, and matches the information provided on these forms by a broker, investment fund, government agency or others to the information provided by individuals on their tax returns. 

Types of 1099s

Here is a list of the specific 1099 forms and the purpose of each.

1099-A  Acquisition or Abandonment of Secured Property, http://www.irs.gov/pub/irs-pdf/f1099a.pdf

1099-B  Proceeds From Broker and Barter Exchange Transactions, http://www.irs.gov/pub/irs-pdf/f1099b.pdf

1099-C  Cancellation of Debt, http://www.irs.gov/pub/irs-pdf/f1099c.pdf

1099-CAP Changes in Corporate Control and Capital Structure, http://www.irs.gov/pub/irs-pdf/f1099cap.pdf

1099-DIV Dividends and Distributions, http://www.irs.gov/pub/irs-pdf/f1099div.pdf

1099-G Certain Government Payments, http://www.irs.gov/pub/irs-pdf/f1099g.pdf

1099-H Health Coverage Tax Credit (HCTC) Advance Payments, http://www.irs.gov/pub/irs-pdf/f1099h.pdf

1099-INT Interest Income, http://www.irs.gov/pub/irs-pdf/f1099int.pdf

1099-K Payment Card and Third Party Network Transactions, http://www.irs.gov/pub/irs-pdf/f1099k.pdf

1099-LTC Long-Term Care and Accelerated Death Benefits, http://www.irs.gov/pub/irs-pdf/f1099ltc.pdf

1099-MISC Miscellaneous Income, http://www.irs.gov/pub/irs-pdf/f1099msc.pdf

1099-OID Original Issue Discount, http://www.irs.gov/pub/irs-pdf/f1099oid.pdf

1099-PATR Taxable Distributions Received From Cooperatives, http://www.irs.gov/pub/irs-pdf/f1099ptr.pdf

1099-Q Payments From Qualified Education Programs (Under Sections 529 and 530), http://www.irs.gov/pub/irs-pdf/f1099q.pdf

1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 

1099-SA  Distributions From an HSA, Archer MSA, or Medicare Advantage MSA, http://www.irs.gov/pub/irs-pdf/f1099sa.pdf

The 1099-MISC Process

One of the most popular versions of the 1099 if the 1099-Miscellaneous Income (MISC), which is used to report business payments, not personal payments, of more than $600 total for the calendar year. Independent contractors, freelancers, sole-proprietors and self-employed individuals receive one from each client who paid them more than $600 in a calendar year.

You would use the 1099-MISC to report what you paid to an independent contractor who provided occasional help to your small business. You would not use it to report what you paid your self-employed babysitter because that work is personal, not part of your business. The babysitter is still responsible for reporting income from you to the IRS, however – and if you pay the sitter $1,900 or more/year, she/he is a household employee and will need to get a W-2 from you. Also, 1099-MISC forms are generally only issuable to individuals and partnerships, not to corporations, but see the IRS’s Instructions for Form 1099-MISC for exceptions to the corporation rule.

Before a Form 1099-MISC can be prepared for a vendor, a W-9 Form must be requested and received from each contractor. In summary, the W-9 form is a record that certifies the non-employers name, address, taxpayer identification number, Social Security Number, Foreign Account Tax Compliance Act (FATCA) code, and US citizenship or residency status.

For each 1099-MISC form prepared for a contract worker, the client will have to include information about its business, such as business name, address and Federal Employer ID number. In addition to the payment or proceed amounts that will be entered in one or more of the boxes above, the client must have the payee's taxpayer identification number (TIN) on the form.

Filling Out the 1099-MISC

First of all, if you will be submitting paper versions of form 1099-MISC (as opposed to filing electronically). The IRS cautions that because paper forms are scanned during processing, you cannot file a form 1099-MISC printed from the IRS website. You can order approved forms from the IRS or purchase them at an office-supply store. In addition, if you are filing electronically, the IRS does not provide a fill-in form option. See IRS publication 1220 for more information on filing form 1099-MISC electronically (click here and scroll down for a link).

Step 1: Complete the box in the upper left-hand corner that asks for the payer’s name, street address, city or town, state or province, country, ZIP or foreign postal code, and telephone number. Your business is the payer, so your business’s information goes here.

Step 2: Below that box, enter your business’s tax identification number. If you are a sole proprietorship, this is usually your Social Security number. If you have a different business structure, your business may have a unique tax ID number (TIN).

Step 3: To the right of the previous box, enter the recipient’s identification number, which is the Social Security or tax identification number of the person you paid. The correct way to request the recipient's Social Security or tax identification number is with IRS form W-9.

Step 4: Below the two boxes you just filled out, complete the boxes that ask for the recipient’s name, street address (including apartment number), and city or town, state or province, country, and ZIP or foreign postal code. Use the information the recipient provided on form W-9.

Step 5: Below that section is a box asking for an account number. Here, you should provide an account number for your recipient if he or she has multiple accounts with you and you are filing more than one 1099-MISC for this person.

Step 6: To the right of the account number box is another box that says “2nd TIN not.” and has a square that can be checked. You may mark it if the IRS has notified you twice in the last three years that the recipient provided an incorrect tax identification number. Marking this square will prevent the IRS from sending you further notices regarding this recipient.

The Numbered Boxes on the 1099-MISC

Now that you’ve completed the unnumbered boxes on form 1099-MISC, let’s move on to the numbered boxes. You will not complete every box, only those that apply to your situation.

Numbered box 1: Rents

If your business paid the recipient $600 or more for certain types of rent, enter the amount here. Examples of rents that must be reported on form 1099-MISC include, but are not limited to, rent paid for office space, machine rental and land rental.

Numbered box 2: Royalties

If your business paid gross royalties of $10 or more to the recipient, report the amount here. For example, you might have paid a royalty for use of a patent, copyright, trade name or trademark.

Numbered box 3: Other income

If you paid the recipient $600 or more for something that isn’t covered by one of the other boxes on form 1099-MISC, report it here. (You might think the IRS would have logically put this box at the end of the form, but alas it has not.)

Numbered box 4: Federal income tax withheld

If the recipient was subject to backup withholding, report the amount your business withheld from his or her pay here.

Numbered box 5: Fishing boat proceeds

This box will not apply to most people. Use it if your business paid someone for catching fish.

Numbered box 6: Medical and health care payments

If your business paid $600 or more to any medical professional, report that amount here, even if the recipient is a corporation (this is one of the exceptions to the rule about not having to issue a 1099-MISC to a corporation). But you do not have to issue a 1099-MISC for healthcare payments to an exempt facility, such as a nonprofit hospital.

Numbered box 7: Non-employee compensation

One of the most common uses of form 1099-MISC is to report payments of more than $600 to independent contractors, and those amounts usually go in box 7. If the person your business paid was your employee, you should fill out form W-2 instead.

Numbered box 8: Substitute payments in lieu of dividends or interest

Most individuals won’t need to fill out this box either. It’s for aggregate payments of at least $10 received by a broker for a customer (who could be an individual, trust, estate, partnership, association, company or corporation) in lieu of dividends or tax-exempt interest as a result of a loan of a customer's securities.

Numbered box 9: Payer made direct sales of $5,000 or more of consumer products to a buyer (recipient) for resale – Check the box if this situation applies to you. You don’t need to enter a dollar amount in this box.

Numbered box 10: Crop insurance proceeds

Is your business an insurance company that paid $600 or more to a farmer? If so, enter the amount here.

Numbered boxes 11 and 12

In the past the IRS used these boxes for foreign taxes paid, but this information is now reported on Form 8966, Foreign Asset Tax Compliance Act Report, so leave these two boxes blank.

Numbered box 13: Excess golden parachute payments – This box is complicated, but it will not apply to most people. Use it if you compensated a disqualified individual (shareholder, an officer or a highly compensated individual) at least three times the individual’s base amount contingent on a change in the ownership or control of a corporation.

Numbered box 14: Gross proceeds paid to an attorney

If your business paid $600 or more to an attorney for legal services, report the amount here.

Numbered box 15a: Section 409A deferrals

Completing this box is optional; more details are available in Internal Revenue Bulletin 2008-52.

Numbered box 15b: Section 409A income

If your business deferred a payment that normally would have been classified as section 409A income but wasn’t because a nonqualified deferred compensation plan failed to satisfy the requirements of section 409A, enter that amount in this box. Again, most people won’t need to complete this box.

Numbered boxes 16 - State tax withheld, 17 - State/Payer’s state no. and 18 - State income

If your business participates in the combined federal/state filing program and/or is required to file paper copies of form 1099-MISC with a state tax department, complete these boxes. Each is divided horizontally in case you need to report tax liability for two states.

Who Gets Copies?

Now that you have completed form 1099-MISC, the next step is to transmit copies to the appropriate parties.

Copy A goes to the IRS. If you are sending a paper form, it is due by the first Monday in March. If you are filing electronically, it is due by the last business day in March. Consult the “Instructions for Payer” section of form 1099-MISC to see the exact deadlines for a specific tax year. File Copy A along with IRS form 1096, Annual Summary and Transmittal of U.S. Information Returns.

Copy 1 goes to the recipient’s state tax department.

Copy B goes to the recipient, which is the person or business you paid, as named on the form. You must furnish this form to the recipient by the end of January. If you are reporting payments in boxes 8 or 14, you have an extra two weeks. Consult the “Instructions for Payer” section of form 1099-MISC to see the exact deadlines for a specific tax year.

Copy 2 also goes to the recipient, who should submit it with his or her state income tax return, when required.

Copy C Retain this copy for your records.

The Bottom Line

These instructions are meant to provide a general overview for educational purposes. For help in understanding when you are required to complete form 1099-MISC and assistance completing this form – or any other 1099 – correctly, use reputable tax software or a professional tax preparer.  For more on this, see Tax Software Vs. An Accountant: Which is Right For You?