1099-MISC Form Guide
Form 1099-MISC is the most common type of 1099 form. Companies mainly use it to report income earned by people who are not regular payroll employees.
The IRS requires businesses to file a copy of the 1099 form with them and mail another copy directly to the so-called “independent contractor” – typically, a service provider – so that the IRS is able to predict how much tax revenue they can expect from self-employed individuals. It serves as an informational reminder to the independent contractor of how much they earned from each company they provided services for and gives them an official form to attach to their 1040 return, in lieu of the W-2.
The 1099-MISC is also used to report royalties, prizes, and awards over $10.
When Do You Need to Send a 1099-MISC Form to Service Providers?
It can be a bit confusing to know exactly when you need to send the form. The IRS stipulates that a business is responsible for sending a 1099-MISC form when someone provides “rents, services (including parts and materials), prizes and awards, or other income payments.” But “someone” is not just anyone. The following conditions must apply in order for you to need to send 1099-MISC forms out.
You Are a Business.
You don’t send a 1099-MISC to the plumber and tiler who installs your new bathroom. But if you are running a bed and breakfast that is a registered company, you are generally required to send 1099-MISC forms to workers who perform the same labor, as this is a legitimate business expense.
The Income is Above the Official Threshold Amount.
Under the threshhold limit of $600, you are not required to mail a 1099-MISC form to independent contractors who did work for your company. That doesn’t mean the contractors are absolved from paying taxes on that income. It simply means you have no official obligation to provide that information to them.
They are Independent Contractors, not Employees.
The IRS parses the distinction by looking at three different criteria:
- Behavioral control: Does the company have a right to control what the worker does and how they perform the job?
- Financial control: Does the company have a say in the material aspects of a worker’s job? In other words, do they determine which expenses are reimbursed or who provides necessary tools and supplies?
- Contractual Relationship: Is there a written contract? Are benefits such as pension, insurance, and vacation or sick days a part of that contractual obligation?
When these three criteria are met, the IRS considers the worker an employee of your company, and you are responsible for filling out a W-2 and paying your share of the FICA taxes. If these criteria are not met, the worker is an independent contractor who is responsible for paying their own taxes. These individuals receive a 1099-MISC.
The Service Provider is a Pass Through Legal Entity.
You are not required to send a 1099-MISC to every individual who does work for your company as an independent contractor. Incorporated businesses — i.e., businesses that are legally considered separate entities and that file taxes as such — do not receive 1099-MISC forms. Neither do limited liability corporations (LLCs) that elect to be treated as corporations for tax purposes.
What Is the Deadline for Sending out 1099-MISC Forms?
The forms must reach the independent contractors who worked for you by January 31 of the year after they provided services. For instance, if a content provider wrote your website in 2017, the date for sending their 1099-MISC form would be January 31, 2018.
You have a little extra time to mail the IRS their copy of the form. They must receive it by the last day of February if you are mailing your taxes or by March 31 if you are filing electronically.
You’ll generate at least three copies of the form:
- Copy A goes to the IRS. If your state has income tax, you will also need to send Copy 1 to the appropriate state tax department.
- Copy B goes to the independent contractor, and you may also need to send them Copy 2 so that they can file it along with their other state income tax materials.
- Copy C is for your records.
The Chief Components of the Form
Like the W-2 form, the 1099-MISC contains a number of standard fields, or boxes, in which the payer enters only information that is relevant to a recipient’s particular situation. The following is a quick overview of the information you will need to enter in the boxes. For more detailed information, you should consult the IRS’s instructions for filling out the 1099-MISC form.
Payer and Recipient’s Information
The IRS provides large field in the upper right-hand corner of the 1099-MISC form for the payer to enter their full name, address, town, state or province, zip code or foreign postal code, and telephone number.
Directly beneath that field are two side-by-side boxes, one for the payer’s federal tax identification number (TIN) and the other for the recipient’s. The TIN may be a social security number or an employer identification number (EIN).
The next three fields on the right-hand side are where you enter the recipient’s information: Their full name; their street address; their city, state or province, country, and zip or foreign postal code.
Beneath the recipient’s information is a field labeled Account Information. The payer only enters information in this field if they are issuing multiple 1099-MISC forms to a single recipient.
FATCA Filing Requirement
The Foreign Account Tax Compliance Act (FATCA) mandates that participating foreign financial institutions report the financial earnings of U.S. account holders. Payers who check this box are generally U.S. citizens reporting interest or dividends earned from a foreign bank or lender.
2nd TIN Not.
You need to check this box if the IRS notified you twice that the recipient’s TIN was incorrect.
Box 1 : Rents
In this field you report rents from real estate listed on either Schedule E or Schedule C of your tax form.
Box 2: Royalties
Box 2 is where you would report payments of royalties for oil, gas, mineral properties, copyrights, and patents that appear on Schedule E.
Box 3: Other Income
You use Box 3 to report other income from Form 1040. Prize money and trade or business income that you reported on Schedule C will also be listed here.
Box 4: Federal Income Tax Withheld
This field is for recording backup withholdings or withholdings on Indian gaming profits.
Box 5: Fishing Boat Proceeds
You enter money received from self-employed fishing boat operators here.
Box 6: Medical and Health Care Payments
Enter medical and health care payments that you reported on Schedule C.
Box 7: Nonemployee Compensation
The most commonly used box, this is where you report the amount of money you paid to independent contractors working in a given tax year.
Box 8: Substitute Payments in Lieu of Dividends or Interest
Substitute payments in lieu of dividends typically occur when a broker lends out the stock you own to short-sellers. If the stock declines as a result of the gambit, you will earn revenue that you must report in this box.
Box 9: Payer Made Direct Sales of $5,000 or More of Consumer Products to a Buyer (Recipient) for Resale
This is simply a check box to indicate whether or not the payer made more than $5,000 in direct sales. You do not have to indicate the exact dollar amount here.
Box 10: Crop Insurance Proceeds
If you received revenue from crop insurance, the amount goes in this field.
Boxes 11 & 12
While they appear on the form, these boxes are currently void, and you should not report any information here.
Box 13: Excess Golden Parachute Payments
This figure will also appear on your 1040 form. Excess golden parachute payments are subject to a 20 percent excise tax.
Box 14: Gross Proceeds Paid to an Attorney
If you consulted or retained an attorney for business purposes in a given tax year, that amount needs to be recorded here.
Boxes 15 a & 15b: Section 409A Deferrals and Income
Companies sometimes elect to pay employees and principals via non-qualified deferred compensation. In other words, the pay is earned one year, but the payee elects to receive compensation later. Box 15a reports the amount of deferred pay, and Box 15b reports current year income (income in Box 15b should also appear in Box 7). This area of the tax code is particularly complex; you should consult the IRS or a tax professional for further information about Section 409 rules and regulations.
Box 16: State Tax Withheld
This is where you report state taxes withheld from your income. If you worked in more than one state, you need to enter information for the other state or states as well.
Box 17: State/Payer’s State No.
Record the official state(s) number here.
Box 18: State Income
Report income you received from each of the states where you worked in this box.