Guide to Services

Guide to Services

Definition of a service

A payment for services is typically for labor that is performed directly by another person. Examples include accountants, doctors, lawyers, painters and independent contractors. Unlike tangible goods, services cannot be shipped and are instantly consumed as provided. Services also include insurance, transportation, education, software as a service and similar services even though the service is not a per hour labor charge.  Services are typically reported in Box 1 of Form 1099-NEC unless there are specific IRS exceptions.  Some common exceptions are payments for medical services reported in Box 6 of From 1099-MISC

Often a payment for services can include charges for both services and tangible goods which makes it difficult to determine if the payment is 1099 reportable. In IRS Rev Ruling 81–232 the IRS gives us an example of a payment that includes $300 for labor and $700 for new parts paid to a repair shop. In this example the IRS states that the entire payment should be reported because the repair shop did not hold itself out as a dealer in parts. The furnishing of parts was only incidental to the repair of the vehicle. The IRS makes it clear that the entire payment to a services provider including incidental tangible goods is reportable on Form 1099-MISC (Now 1099-NEC).  However, if you visit a dealership to purchase a vehicle, the primary purchase is a tangible good and is not reportable. 

If you purchase a standard meal from a restaurant the primary purchase is food, a tangible good and is not reportable. The service provided is incidental to the food purchase. If you have your meal catered, the primarily purchase is a service and is reportable. The food provided is incidental to the service. Remember in all cases, if you pay by a credit card, the goods or services are not reportable as the credit card merchant is responsible for reporting. For additional references see IRS Sections 6041 and 6041a.

In 2004 the IRS issued Rev. Proc. 2004-43 that provided an optional procedure companies could use to determine what credit card transactions were reportable on Form 1099-MISC (Now 1099-NEC) using the merchant category. This revenue procedure is now obsolete as credit card transactions are now reported directly by credit card companies. However, the procedure is still helpful as it provides general insight into the IRS view of whether they see the business category as either primary merchandise or primarily service.  (You must still look closely at the primary goods or services purchased since the MCC procedure is no longer available.) 

This list below is taken from Rev. Proc. 2004-43 and shows the merchant categories that the IRS specified as generally reportable at a high level on Form 1099-MISC (Now 1099-NEC).

Merchant categories previously reportable per Rev. Proc. 2004-43

7623 A/C, Refrigeration Repair
8931 Accounting/Bookkeeping Services
7311 Advertising Services
0763 Agricultural Cooperative
3000-3299 Airlines
4511 Airlines, Air Carriers
4582 Airports, Flying Fields
4119 Ambulance Services
7996 Amusement Parks/Carnivals
7998 Aquariums
8911 Architectural/Surveying Services
7531 Auto Body Repair Shops
7535 Auto Paint Shops
7538 Auto Service Shops
8675 Automobile Associations
9223 Bail and Bond Payments (payment to the surety for the bond, not the actual bond paid to the government agency)
7929 Bands, Orchestras
7230 Barber and Beauty Shops
7995 Betting/Casino Gambling
7932 Billiard/Pool Establishments
4457 Boat Rentals and Leases
7933 Bowling Alleys
4131 Bus Lines
7278 Buying/Shopping Services
3351-3441 Car Rental
7512 Car Rental Agencies
7542 Car Washes
1750 Carpentry Contractors
7217 Carpet/Upholstery Cleaning
5811 Caterers
8351 Child Care Services
8049 Chiropodists, Podiatrists
8041 Chiropractors
7349 Cleaning and Maintenance
7296 Clothing Rental
7333 Commercial Photography, Art and Graphics
4111 Commuter Transport, Ferries
7372 Computer Programming
7379 Computer Repair
1771 Concrete Work Contractors
7392 Consulting, Public Relations
7277 Counseling Services
7997 Country Clubs
4215 Courier Services
7321 Credit Reporting Agencies
4411 Cruise Lines
7911 Dance Hall, Studios, Schools
7273 Dating/Escort Services
8021 Dentists, Orthodontists
7393 Detective Agencies
5960 Direct Marketing – Insurance Services
5962 Direct Marketing – Travel
8011 Doctors
7216 Dry Cleaners
8299 Educational Services
1731 Electrical Contractors
7622 Electronics Repair Shops
7361 Employment/Temp Agencies
7394 Equipment Rental
7342 Exterminating Services
6012 Financial Institutions
7261 Funeral Services, Crematories
7641 Furniture Repair, Refinishing
1520 General Contractors
7992 Golf Courses – Public
7298 Health and Beauty Spas
1711 Heating, Plumbing, A/C
8062 Hospitals
7011 Hotels, Motels, and Resorts
3501-3790 Hotels/Motels/Inns/Resorts
7375 Information Retrieval Services
0780 Landscaping Services
7211 Laundries
7210 Laundry, Cleaning Services
8111 Legal Services, Attorneys
4468 Marinas, Service and Supplies
1740 Masonry, Stonework, and Plaster
7297 Massage Parlors
8071 Medical and Dental Labs
8099 Medical Services
8699 Membership Organizations
7399 Miscellaneous Business Services
7299 Miscellaneous General Services
2741 Miscellaneous Publishing and Printing
7999 Miscellaneous Recreation Services
7699 Miscellaneous Repair Shops
7832 Motion Picture Theaters
8050 Nursing/Personal Care
8043 Opticians, Eyeglasses
8042 Optometrists, Ophthalmologist
8031 Osteopaths
7523 Parking Lots, Garages
4112 Passenger Railways
7395 Photo Developing
7221 Photographic Studios
7829 Picture/Video Production
8651 Political Organizations
8999 Professional Services
7338 Quick Copy, Repro, and Blueprint
6513 Real Estate Agents and Managers – Rentals
7519 Recreational Vehicle Rentals
1761 Roofing/Siding, Sheet Metal
7339 Secretarial Support Services
6211 Security Brokers/Dealers
7251 Shoe Repair/Hat Cleaning
7629 Small Appliance Repair
1799 Special Trade Contractors
2842 Specialty Cleaning
7032 Sporting/Recreation Camps
7941 Sports Clubs/Fields
5697 Tailors, Alterations
7276 Tax Preparation Services
4121 Taxicabs/Limousines
8734 Testing Laboratories
7922 Theatrical Ticket Agencies
7012 Timeshares
7534 Tire Retreading and Repair
7991 Tourist Attractions and Exhibits
7549 Towing Services
7033 Trailer Parks, Campgrounds
4789 Transportation Services (Not Elsewhere Classified)
4722 Travel Agencies, Tour Operators
7511 Truck Stop
7513 Truck/Utility Trailer Rentals
4723 TUI Travel – Germany
2791 Typesetting, Plate Making, and Related Services
742 Veterinary Services
7994 Video Game Arcades
7841 Video Tape Rental Stores
7631 Watch/Jewelry Repair
7692 Welding Repair
5935 Wrecking and Salvage Yards