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 the 1099-MISC form used for?

Businesses file Form 1099-MISC, Miscellaneous Income for each person (who’s not an employee) and unincorporated business (with some exceptions) in the course of your business to whom you have paid during the year:

    • At least $10 in royalties (see the instructions for box 2) or broker payments in lieu of dividends or tax-exempt interest (see the instructions for box 8);
    • At least $600 in:
    1. Rents (box 1);
    2. Prizes and awards (boxes 3);
    3. Other income payments (box 3);
    4. Generally, the cash paid from a notional principal contract to an individual, partnership, or estate (box 3);
    5. Any fishing boat proceeds (box 5);
    6. Medical and health care payments (box 6);
    7. Crop insurance proceeds (box 9);
    8. Payments to an attorney (box 10) (see Payments to attorneys, in 1099 instructions);
    9. Section 409A deferrals (box 12); or
    10. Nonqualified deferred compensation (box 14).

In addition, use Form 1099-MISC 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 (box 7).

You also must 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.

For additional information see the Instructions for Form 1099-MISC 

Are personal payments reportable on a 1099-MISC or 1099-NEC form?

No.  Only payments made in the course of your business are reportable on Form 1099-MISC or 1099-NEC.  Personal payments are not reportable. You are engaged in a trade or business if you operate for gain or profit. However, nonprofit organizations are considered to be engaged in a trade or business and are subject to these reporting requirements. Other organizations subject to these reporting requirements include trusts of qualified pension or profit-sharing plans of employers, certain organizations exempt from tax under section 501(c) or (d), farmers’ cooperatives that are exempt from tax under section 521, and widely held fixed investment trusts. Payments by federal, state, or local government agencies also are reportable.

For additional information see the Instructions for Forms 1099-MISC and 1099-NEC.

Are payments made to a corporation reportable on a 1099-MISC and 1099-NEC form?

Generally, payments to a corporation (including a limited liability company (LLC) that is treated as a C or S corporation) are not reportable.  However, the following payments made to corporations generally must be reported on Form 1099-MISC.

    • Medical and health care payments reported in box 6, 1099-MISC.
    • Fish purchases for cash reported in box 1, 1099-NEC.
    • Attorneys’ fees reported in box 1, 1099-NEC.
    • Gross proceeds paid to an attorney reported in box 10, 1099-MISC.
    • Substitute payments in lieu of dividends or tax-exempt interest reported in box 8, 1099-MISC.
    • Payments by a federal executive agency for services (vendors) reported in box 1, 1099-NEC.

For additional information see the Instructions for Forms 1099-MISC and 1099-NEC.