What payments are exempt from 1099 reporting?

Some examples of payments that are exempt from 1099 reporting are:

  • Payments for only merchandise such as office supplies, cleaning supplies, and products purchased for resale.
  • Payments for telegrams, telephone, freight, and storage.
  • Payments of rent to real estate agents acting as an agent for the owner.
  • Payments to tax-exempt entities under IRC § 501(a) such as governments, the United States, states, District of Columbia, a possession of the United States or any political subdivision, agency or instrumentality of any of these.
  • Wages paid to employees. All employee compensation, cash or noncash, must be reported on Form W-2.

What is the difference between a Form W-2 and a Form 1099-MISC/NEC?

Although both of these forms are called information returns, they serve different functions.

Employers use Form W-2, Wage and Tax Statement to:

  • Report wages, tips, and other compensation paid to an employee.
  • Report the employee’s income and social security taxes withheld and other information.
  • Report wage and withholding information to the employee and the Social Security Administration. The Social Security Administration shares the information with the Internal Revenue Service.

Payers use Form 1099-MISC and 1099-NEC to:

  • Report payments made in the course of a trade or business to a person who’s not an employee or to an unincorporated business.
  • Report payments of $10 or more in gross royalties or $600 or more in rents or compensation. Report payment information to the IRS and the person or business that received the payment.

What is “information reporting”?

Organizations are required to report certain “reportable” payments made in the course of their trade or business to the IRS.  This process is known as “Information reporting”.  There are over 30 information tax returns that are required to be submitted to the IRS.

This process allows the IRS to cross-check the income reported from these organization with the income reported on an individual and entity’s tax return.  This in turn helps increase the likelihood that all income received is reported and, therefore, that all tax is paid.  Some of the more common information tax returns are:

Form W-2 Wage and Tax Statement

Form 1099 (16) non-wage

  • Form 1099-MISC, Miscellaneous payments
  • Form 1099-INT, Interest income
  • Form 1099-DIV, Dividends & distributions
  • Form 1099-K, Merchant card & third-party network payments
  • Form 1099-B, Broker & barter transactions
  • Form 1099-G, Government payments

Form 1042-S – Payments to foreign persons

Form 1098 (5) – Mortgage interest, mortgage assistance payments, auto/boat/plane donation, student loan interest paid, tuition paid.

From 5498 (3) – IRA account info, HSAs, Coverdell Education Savings Accounts.

Where can I find help from the IRS on issuing 1099 forms?

The IRS has several resources to assist businesses in issuing 1099 forms.  Click on the following to access the resources.

General Instructions for Certain Information Returns – This provides general instructions for all 1099 forms.

Instructions for Forms 1099-MISC and 1099-NEC – This provides specific instructions for completing the 1099-MISC and 1099-NEC forms.

About Form 1099 – An IRS.gov page that provides additional information and links to most 1099 form instructions.