What is a 1099-MISC form?

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.

Form 1099-MISC

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.

New Form 1099-MISC 2020

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.

Exempt Payees

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.

Additional References

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.

 

Do I have to request a W-9 from a corporation?

Summary

The Internal Revenue Code (IRC) states that payments to corporations generally do not have to be reported on an information return like Form 1099-MISC.   See Are payments to corporations reportable on a 1099-MISC form? for a discussion of exceptions.  The IRC goes on to state that you may treat a corporation as an exempt recipient (generally exempt from information reporting or receiving Form 1099-MISC) if one of the following indicators is met to identify the entity as a corporation.

  1. A Form W-9 is received which includes an EIN and a statement from the payee that it is a domestic corporation.
  2. You have on file a domestic corporate resolution or similar document clearly indicating corporate status.
  3. The name of the corporation contains an unambiguous expression of corporate status that is Incorporated, Inc., Corporation, Corp., P.C., (but not Company or Co.) or contains the term insurance company, indemnity company, reinsurance company, or assurance company.

There are two ways in practice that accounting departments comply with these indicators so they are not required to obtain Form W-9.  The first step is to look for Inc. or similar terminology on a company’s website, invoice, contract or other document.  The second step is to go to the Secretary of State’s website, complete a business search for the company name and download the Certificate of Incorporation for companies that are a corporation.  If you can determine that an entity is a corporation from one of these two indicators and has no reportable payments (for example, medical or attorney payments) you do not have to request Form W-9.   Please note that foreign corporations are outside the scope of this discussion.

The Long Answer

Internal Revenue Code section 1.6041-3 details payments for which no return of information is required under section 6041.  Paragraph (p)(1) of this section states that an information return is not required for payments made to “a corporation described in section 1.6049-4(c)(1)(ii).”  See Are payments to corporations reportable on a 1099-MISC form? for a discussion of exceptions.

Section 1.6049-4(c)(1)(ii)(A) listed below states that a payer may treat a corporation as an exempt recipient (who is generally exempt from information reporting) based on a properly completed Form W-9 or one of the indicators described in paragraph (c)(1)(ii)(A).

There are two ways in practice that accounting departments comply with these indicators so they are not required to obtain Form W-9.  The first step is to look for Inc. or similar terminology on a company’s website, invoice, contract or other document.  The second step is to go to the Secretary of State’s website, complete a business search for the company name and download the Certificate of Incorporation for companies that are a corporation.  If you can determine that an entity is a corporation from one of these two indicators and has no reportable payments (for example, medical or attorney payments) you do not have to request Form W-9.   Please note that foreign corporations are outside the scope of this discussion.

IRC Section 1.6049-4(c)(1)(ii)(A)

(ii) Exempt recipient defined. The term exempt recipient means any person described in paragraphs (c)(1)(ii)(A) through (Q) of this section. An exempt recipient is generally exempt from information reporting without filing a certificate claiming exempt status unless the provisions of this paragraph (c)(1)(ii) require a payee to file a certificate.

A payor may, in any case, require a payee that is a U.S. person not otherwise required to file a certificate under this paragraph (c)(1)(ii) to file a certificate in order to qualify as an exempt recipient. See § 31.3406(h)-3(a)(1)(iii) and (c)(2) of this chapter for the certificate that a payee that is a U.S. person must provide when a payor requires the certificate to treat the payee as an exempt recipient under this paragraph (c)(1)(ii). A payor may treat a payee as an exempt recipient based upon a properly completed form as described in § 31.3406(h)-3(e)(2) of this chapter, its actual knowledge that the payee is a person described in this paragraph (c)(1)(ii), or the indicators described in this paragraph (c)(1)(ii).

(A) Corporation. A corporation, as defined in section 7701(a)(3), whether domestic or foreign, is an exempt recipient. In addition, for purposes of this paragraph (c)(1), the term corporation includes a partnership all of whose members are corporations described in this paragraph (c)(1), but only if the partnership files with the payor a certificate stating that each member of the partnership meets one of the requirements of paragraph (c)(1)(ii)(A) (1) through (4) of this section. Absent actual knowledge otherwise, a payor may treat a payee as a corporation (and, therefore, as an exempt recipient) if one of the requirements of paragraph (c)(1)(ii)(A) (1), (2), (3), or (4), of this section are met before a payment is made.

(1) The name of the payee contains an unambiguous expression of corporate status that is Incorporated, Inc., Corporation, Corp., P.C., (but not Company or Co.) or contains the term insurance company, indemnity company, reinsurance company, or assurance company, or its name indicates that it is an entity listed as a per se corporation under § 301.7701-2(b)(8)(i) of this chapter.

(2) The payor has on file a corporate resolution or similar document clearly indicating corporate status. For this purpose, a similar document includes a copy of Form 8832, filed by the entity to elect classification as an association under § 301.7701-3(b) of this chapter.

(3) The payor receives a Form W-9 which includes an EIN and a statement from the payee that it is a domestic corporation.

(4) The payor receives a withholding certificate described in § 1.1441-1(e)(2)(i), that includes a certification that the person whose name is on the certificate is a foreign corporation.

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, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.