Summary: 1099-MISC is an IRS form relating to independent contractor payments in the US.
The Internal Revenue Service (IRS) uses over 800 forms and schedules to manage tax payments and reporting, so it’s no wonder that most people, even IRS employees, don’t know what they’re all for.
However, we all know that it’s mandatory to report all income, no matter where it comes from, so that we don’t face issues and penalties. If you own a backhoe that you rent out, get paid royalties for a song you wrote, or win a show home in a raffle, how are you supposed to report these varied sources of income?
The answer is Form 1099-MISC, and in this article, we’ll look at what else this form is used for and how to fill it out correctly.
What is Form 1099-MISC?
Form 1099-MISC, Miscellaneous Information, is an IRS form used to report miscellaneous information to the IRS regarding payments made in the course of a trade or business.
As an information return, Form 1099-MISC is used to indicate payments that include rents, royalties, prizes, and more.
This form is filled out and filed by businesses, non-profit organizations, and tradespeople who also need to provide it to the recipients of their payments.
What’s the Difference Between Form 1099-MISC vs Form 1099-NEC?
The IRS made major changes to its 1099 form system in tax year 2020. Previously, payments to freelancers and independent contractors were reported on Form 1099-MISC, giving rise to the term “1099 employee,” which is synonymous with contractor.
However, in 2020, the IRS required contractor payments to be reported instead on Form 1099-NEC, Nonemployee Compensation. This means that contractor payments no longer need to be reported on 1099-MISC. Excess golden parachute payments must also now be reported on Form 1099-NEC.
What is on Form 1099-MISC?
Form 1099-MISC is not a long and complicated form. Instead, it holds nine non-numbered boxes for general information and 18 numbered boxes for income reporting.
Non-Numbered Boxes
- Calendar year
- Payer’s name and address
- Payer’s TIN
- Recipient’s TIN
- Recipient’s name
- Recipient’s street address
- Recipient’s city, state, and Zip code
- Payer’s account number
- “2nd TIN not.” (selected if the payer has already received two notifications for incorrect TINs in the previous three years)
Numbered Boxes
The 18 numbered boxes provide space for dollar amounts, other numbers, or ticking. This is what to write in each:
| Box 1 | Rents | Rents over $600, which are paid for real estate or equipment. |
| Box 2 | Royalties | Royalties over $10 paid on oil, gas, or mineral properties, copyrights, and patents |
| Box 3 | Other Income | Payments over $600 made to beneficiaries of deceased employees, prizes, awards, damages, and Indian gaming profits, and other taxable income |
| Box 4 | Federal income tax withheld | Backup withholding for payees that did not provide a TIN or withholding on Indian gaming profits |
| Box 5 | The fishing boat proceeds | Amounts paid to self-employed fishing boat crew members |
| Box 6 | Medical and healthcare payments | Payments made for medical and healthcare services |
| Box 7 | Payer made direct sales totaling $5,000 or more of consumer products to the recipient for purposes of resale | Box ticked if conditions apply |
| Box 8 | Substitute payments in lieu of dividends or interest | Substitute payments in lieu of dividends or tax-exempt interest paid to brokers on behalf of payees resulting from loans of securities |
| Box 9 | Crop insurance proceeds | Payments of crop insurance benefits |
| Box 10 | Gross proceeds paid to an attorney | Payments for legal services |
| Box 11 | Fish purchased for resale | Cash payments for fish or other water-dwelling creatures purchased from anyone engaged in the business of catching fish. |
| Box 12 | Section 409A deferrals | Deferrals by non-employees under non-qualified deferred compensation (NQDC) plans are subject to the requirements of section 409A and earnings on current year deferrals |
| Box 13 | FATCA filing requirement | selected if the filer needs to meet the Foreign Account Tax Compliance Act accounting requirements |
| Box 14 | N/A | Left blank. |
| Box 15 | Nonqualified deferral compensation | Income paid to non-employees under NQDC plans that don’t meet section 409A requirements |
| Box 16 | State tax withheld | State or local income tax withheld from payments |
| Box 17 | State and payer’s state number | Payer’s state tax identification number |
| Box 18 | State income | Payment amounts are subject to state tax |
Form 1099-MISC Copies
Form 1099-MISC includes four copies if using the paper form. If filing electronically, these copies are automatically generated and sent to the correct recipients. All four of these copies are filled out by the payer. They include:
- Copy A: To be filed with the IRS
- Copy B: To be sent to the recipient (payee)
- Copy 1: To be filed with the state tax department
- Copy 2: To be filed with the recipient’s state income tax return
What is Form 1099-MISC Used For?
In general, Form 1099-MISC is used to report payments to recipients greater than $10 in the case of royalties and greater than $600 in the case of
- Rent
- Prizes and awards
- Other income payments
- Medical and health care payments
- Crop insurance proceeds
- Cash payments for fish
- The fishing boat proceeds
- Payments to attorneys
This form is also used to report income from notional principal contracts to individuals or estates.
You should use Form 1099-MISC to report direct sales of consumer products to a buyer for resale outside of permanent retail establishments if the value of the products is at least $5,000.
You must also file this form if you have withheld any federal income tax under the backup withholding rules. If your payee didn’t provide you with a tax identification number (TIN), you may be required to withhold federal taxes at the rate of 24%. This withholding should be reported in Box 4.
It’s important that you only use Form 1099-MISC for payments made in the course of your trade or business, not personal payments.
How and When Do You File Form 1099-MISC?
If you’re planning to file on paper, you need to file Form 1099-MISC by February 28. If you’re going to file electronically, however, this deadline is extended to March 31. You’ll need to send these forms to recipients sooner, however, as the deadline is January 31. If these dates fall on weekends or holidays, they are extended to the next business day.
To file Form 1099-MISC on paper as a business operator or tradesperson, you’ll need to request these forms from the IRS. You can fill them out and send copies to your recipients, then file the forms by sending them by post to the IRS (Copy A) and to your state tax administration (Copy 1) as required. You can produce Copies B, 1, and 2 by filling out the PDF versions found online and printing them, but not Copy A, which must be ordered. You can also choose to fill these forms out electronically.
Keep in mind that if you need to make more than ten information filings total (including W-2, other 1099, and various other reporting forms), you must file online.
If you file 1099-MISC forms on paper, you’ll need to include a Form 1096, Annual Summary and Transmittal of U.S. Information Return, with your return. This form acts like a cover letter, telling the IRS what type of information return you are filing and summarizing totals. You can use one Form 1096 for up to ten Form 1099-MISCs.
If you are a recipient of 1099-MISC forms, you’ll use them to determine your income on your personal income tax filing. You’ll receive Copy B for your own use, but you don’t need to include it with your federal income tax filing. However, you’ll also receive Copy 2, which you may be required to file along with your state income tax return.
Form 1099-MISC Summarized
Of the many forms used to report to the IRS, Form 1099-MISC is one of the most common. It is used to report many different kinds of payments and should be filled out by businesses or tradespeople and filed with the IRS.
This form can be filed on paper or electronically, but either way, it’s an important information return required for proving business payments and calculating personal income tax obligations.
FAQ
If you’re legally a contractor, you may end up doing both tasks. If you’re paid amounts of over $600 for your work, the person or entity paying you needs to fill out and file a 1099-MISC form and send you two copies for your tax return. However, if you pay a subcontractor or rent equipment, for example, you’ll need to fill out 1099-MISC forms for the payments you make over $600. You’ll need to file these with the IRS and send copies to the payment recipients.
No, if you own properties that you rent out, you need to report your income from these rentals on your Form 1040, U.S. Individual Income Tax Return. However, if you pay fees to attorneys, property managers, building contractors, or other non-corporations for services to your properties, you do need to file 1099-MISC or 1099-NEC forms for each payment you make over $600.