The 1099-MISC form is known as an “Information Return”
Form 1099 is one of many forms that the IRS requires to be sent to individuals and entities to report payments made to them during the course of a calendar year. It is very similar to Form W-2, the most well known “information return,” which is used to report wages paid to employees. The 1099 form, however, is primarily used to report payments made to vendors and individuals that are not employees.
There are almost twenty different 1099 forms. Individuals receive a 1099-INT from their bank for interest paid or a 1099-DIV from their broker for dividends paid. A 1099-G is sent by state governments to report state tax refunds. A 1099-S is sent to report proceeds from real estate transactions. Form 1099-NEC is used to report nonemployee compensation. Form 1099-MISC is one of the most used 1099 forms by companies. It is used by companies to report payments made to their vendors and independent contracts in the course of their business. However, only specific payments are required by the IRS to be reported.
Payments reportable on a 1099-MISC
The Instructions for Forms 1099-MISC and 1099-NEC from the IRS provides a long list of payments that are reportable. The primary payments that are listed as reportable in the instructions are:
At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
Payments of at least $600 in:
- Rents (box 1);
- Prizes and awards (box 3);
- Other income payments (box 3);
- Generally, the cash paid from a notional principal contract to an individual, partnership, or estate (box 3);
- Any fishing boat proceeds (box 5);
- Medical and health care payments (box 6);
- Crop insurance proceeds (box 9);
- Payments to an attorney (box 10) (see Payments to attorneys, later);
- Section 409A deferrals (box 12); or
- Nonqualified deferred compensation (box 14).
In addition, Form 1099-MISC is used to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.
You must also file Form 1099-MISC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.
Do not use Form 1099-MISC to report employee wages. Employers use Form W-2 to report wages, tips and other compensation paid to an employee.
Once you have determined that a payment is reportable, you then need to look at the tax classification of the person or entity paid. Many entities, such as U.S. governments or nonprofits, are exempt from 1099 reporting and are not required to receive a 1099-MISC, even if the payment is reportable. Corporations are also typically exempt from 1099-MISC reporting with the exception of certain medial payments.
For additional help see the 2020 General Instructions for Certain Information Returns from the IRS.
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Disclaimer – Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. This article is also not a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.