The IRS Form 1099-MISC is a general-purpose form used to report payments made to others during the year, such as royalties, awards, rents, medical and healthcare payments, and attorney fees. While nonemployee income was previously reported on this form, but it is now reported separately.
Form 1099-MISC should not be used to report payments to non-employees like independent contractors. Form 1099-NEC should be used to report payments for work done by non-employees.
Because the IRS has made such a significant shift in who should send and receive 1099-MISC forms, it is critical to be aware of the changes and how they may affect you.
Who Should Send a Form 1099-MISC?
You must prepare 1099-MISC forms to record the amounts you paid to others during the year if you make certain payments as part of your trade or business. A “trade or business” is defined by the IRS as:
- A business you run for profit or benefit
- 501(c)3 and 501(d) organizations are examples of non-profit organizations.
- An eligible employer pension or profit-sharing plan’s trust
- Farmers’ cooperative that is not exempt
- A well-known fixed-income trust
Who Should Get a Form 1099-MISC?
Request that payees complete and sign a W-9 form, which will include their taxpayer ID information, to prepare a 1099-MISC document. The IRS will reject the form if the taxpayer ID is missing or incorrect. Forms must be sent or mailed to your payees, and they must be filed with the IRS.
For certain types of payments of $600 or more made during the year, you must send and file a 1099-MISC. You usually do not have to declare payments less than that amount.
Rents are recorded in section 1 of the 1099-MISC form and should include:
- Rent or lease payments, but not payments to real estate brokers or property managers
- Rental of machines. Divide the money between the machine provider and the operator if the machine rental includes a payment to the machine operator. The payment to the machine operator will be reported on Form 1099-MISC, and the payment to the operator will be reported on Form 1099-NEC.
- Payments to coin-operated amusements’ owners
- Pasture leases
Awards and Prizes
The fair market value of merchandise you provided to someone would be reported in box 3 of the 1099-MISC form as prizes and awards. Sweepstakes winnings, for example, are included but not wagering revenues or casino gambling winnings.
Payments for Medical and Health Care
Box 6 is where you must declare payments made by your company to doctors, suppliers, or providers of medical or health care services. Payments to medical healthcare insurance firms are included. Payments to pharmacies for prescription medications are not required to be reported.
Payments to companies are not normally required to be reported, but they must be reported if they provide medical or health care services. Make sure the payee is a corporation, not a person.
Payments to Lawyers
Report gross proceeds of $600 or more paid to an attorney or law firm during the year, including payments to companies, on Form 1099-MISC, box 10. Gross revenues are not legal fees; they are sums paid in other ways, such as through a case settlement agreement. To report payment of attorney fees for services, use Form 1099-NEC.
Report any further payments of $600 or more in box 3. Termination payments to former self-employed insurance salespeople and damages payments after a lawsuit are miscellaneous payments.
Exceptions to the $600 Minimum Annual Payment
The $600 annual requirement does not apply in a few unusual instances. You must report money paid in the following situations, regardless of the amount.
If you paid the beneficiary at least $10 during the year, you must disclose royalties in box 2. Royalties are payments made to property owners in exchange for the use of their property. Copyrights, patents, trade names, and trademarks are examples of intellectual property, as are oil, gas, and other mineral resources.
Backup withholding orders are IRS orders that require your organization to deduct income taxes from payments you make to a payee. Even if the total is $600 or less, you must disclose all backup withholding amounts for anybody you have withheld income taxes under a backup withholding order. If the backup withholding is for a non-employee, record the payments on Form 1099-NEC.
Who Should not Get a 1099-MISC Form?
To record wages received from employees, do not utilize Form 1099-MISC. All payments to workers, including business travel allowances and expense reimbursements, should be made on Form W-2. To record payments to independent contractors, use form 1099-NEC.
Payments to corporations, including LLCs taxed as corporations, are generally not required to be reported, although there are several exceptions. Payments for merchandise, telegraphs, telephone, freight, storage, and other comparable items are not required to be reported.
When to file the 1099-MISC form, and where should I file them?
Payees and the IRS must receive your 1099-MISC forms by February 28 of the following year. If February 28 happens on a Sunday, the due date is the next day. If you file them online with the IRS, you have until March 31, but payees have until February 28.
The IRS’s File Electronic Returns Electronically (FIRE) system is the most efficient way to file 1099-MISC forms with the IRS. You must file online if you file 250 or more 1099-MISC forms. A printed 1099-MISC.3 can also be filed.
The IRS Form 1099-MISC rules are complicated, and every business situation is different. To produce the 1099-MISC, you should either hire a trained tax professional or use tax preparation software.