1099-MISC Document Information
What is a 1099-MISC Form?
The 1099-MISC is used to report certain types of non-employee income. As of the 2020 tax year, the 1099-MISC is now only used to report the following types of incomeworth at least $600:
- Rents
- Prizes and awards
- Other income payments
- Cash paid from a notional principal contract made to an individual, partnership, or an estate
- Fishing boat proceeds
- Medical and health care payments
- Crop insurance proceeds
- Gross proceeds paid to a lawyer
- Section 409A deferrals
- Nonqualified deferral compensation.
Additionally, use a a Form 1099-MISC for:
- At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
- 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.
Compensation for freelancers and independent contractors are no longer reported using a 1099-MISC. Instead, they are reported using a 1099-NEC.
What you need to know
This document, technically known as the 1099-MISC Form, is a tax document that confuses. Who gets one? Who doesn't? Do I need to send them out? Many a bewildered business owner just decides not to bother with it because they just don't know what to do. Fortunately, this form is relatively simple to understand and easy to fill out once you grasp the basics of completing the form and who needs to receive one.
The IRS provides specific and clear instructions on when a 1099-MISC must be used. For example, if you received at least $600 in rental income, you would use a 1099-MISC. If you paid a lawyer at least $600 for legal services of some kind for your business, you can send them a 1099-MISC. If you received a prize or an award worth at least $600 or if you give out a prize worth at least $600, a 1099-MISC is required/If you were paying an independent contractor or freelancer for at least $600 in services, you would use a 1099-NEC.
The individual or business receiving a 1099-MISC can use it in addition to or in place of the W-2 that they would win in a standard employment arrangement.
As previously mentioned, it is also used to report a prize or award from a business. It reminds the recipient that they must pay taxes on that item or income (if they haven't done so already). It provides documentation that tells them exactly how much they've received from your business.
Don't delay or skip sending out the document by the end of January for the previous tax year. Failing to send it out as required can be punishable by fines of $30.00 to $100.00 per form.
If the IRS proves that a business intentionally disregarded the law when they failed to send out the proper form, the penalty starts at $250.00 per missed statement and with no maximum.
There are quite a few exceptions for which you do not need to send out a 1099-MISC (although this does not mean that the income is not taxable for the recipient). You're not required to send one to real estate agents or sellers of merchandise, storage, freight, etc. However, you are required to send one to any lawyer that you paid more than $600 to in a calendar year, even if they work with a law firm.
What are the components of a 1099-MISC?
Overview of fields in a 1099-misc
Those who need to send out a 1099-MISC can acquire a free fillable form by navigating the website of the IRS, which is located at www.irs.gov.
Once you've received your copy of the form, you'll want to familiarize yourself with the various boxes that must be completed.
Under the checkboxes that say "VOID" and "CORRECTED" (which are only to be used in exceptional circ*mstances), you'll find in the upper left corner a relatively large field for the payer's name and necessary contact information.
Payer’s and Recipient’s Information
Under that large box will be two smaller fields: one on the left for the payer's federal identification number (F-EIN) and one on the right for the recipient's identification number (that's a fancy way of referring to their social security number, their taxpayer identification number (TIN), their adoption taxpayer identification number (ATIN), or their F-EIN. One thing to keep in mind is that a Box number doesn't designate this information as you'll notice on the right side of the page and other tax return documents.
Interestingly, even though the contact information for the payer was just one large box, the fields for the recipient's name, street address, city, state, and zip code are separate. These separated fields are located under the boxes for the federal identification numbers of the payer and recipient of this IRS form.
Account Number
Next, you'll see the account number field. It is located on the left side of the form, and it does not have its Box number. The account number is generally filled if the payer has multiple accounts for a recipient for whom they file more than one 1099-MISC Form.
FATCA Filing Requirement Checkbox
You'll see a little checkbox for FATCA Filing Requirement. This refers to the Foreign Account Tax Compliance Act filing. You, as the payer, must be a U.S. citizen required to report specified foreign tax payments. This box has no identifying number. It is located directly to the right of the Account Number Box.
2nd TIN No.
Next to the FATCA Filing Requirement checkbox, you'll see another checkbox for 2nd TIN No. Check this box if you, as the payer, were notified twice by the IRS that the recipient's TIN was incorrect. This notification takes place over three years.
Box 1
Box 1 is located on the right side of the page. It is designated as Rents. You would report rents from real estate listed on Schedule E or Schedule C (depending on your circ*mstances). You can learn more about this box in the IRS instructions for the 1099-MISC Form.
Box 2
Box 2 is designated as royalties for oil, gas, mineral properties, copyrights, and patents from Schedule E. You'd also use this box to report payments for working interest. If you receive royalties on timber, coal, or iron ore, you should consult IRS Pub. 527.
Box 3
Box 3 is used to report other income from Form 1040. You'll also identify the type of payment. For example, if you won a prize worth $650, the amount would be reported in this box, and you'd designate that as a prize. If the money is trade or business income, it is published on Schedule C or F, but will still be listed here.
Box 4
Box 4 records backup withholding or withholding on Indian gaming profits.
Box 5
Box 5 records money received by fishing boat operators who are self-employed.
Box 6
Box 6 is for medical and health care payments that are reported on Schedule C.
Box 7
This box holds a checkbox that you will use if you made direct sales totaling $5,000 or more of consumer products to the recipient for resale. Remember that freelancers and independent contractors now have their payments reported via 1099-NEC.
Box 8
This box records substitute payments instead of dividends or interest.
Box 9
Box 9 records crop insurance proceeds.
Box 10
Box 10 records the gross proceeds paid to an attorney.
Box 11
Box 11 records cash payments for the purchase of fish for resale.
Box 12
Box 12 records Section 409A deferrals.
Box 14
Box 14 is designated as Excess golden parachute payments. Excess golden parachute payments are reflected on Form 1040, and they are subject to a 20% excise tax.
Box 15
Box 15 is designated for nonqualified deferred compensation.
Boxes 16 & 17
Box 15 holds information for state tax withheld. There is space for two states. Box 17 records the state or payer’s state numbers. You will notice that there is enough room to list information for two states.
Box 18
Box 18 is used to record state income. Like the two previous boxes, there is enough room to list income for two states.
Boxes 16 through 18 track state information, and they are only provided for the payer's convenience. They do not need to be filled by the payer. Payers who familiarize themselves with these boxes will discover that it isn't so complicated after all. Once completed, the payer must send a copy of it to the Internal Revenue Service and a copy to the paid individual.
How do you fill out a 1099-MISC?
This document should not be confused with a W-2 formor with the 1099-NEC. The 1099-NEC is used to pay freelancers and independent contractors. This is a recent change as a 1099-MISC was previously used to record payments to freelancers and independent contractors.
Completing and filing this tax form is easy. Simply fill in the appropriate boxes according to the definition of the boxes you learned about in this guide. Remember that you won't put information in every box. Once the form is complete, you'll send a copy to the person you paid, and you'll also send a copy to the IRS. The specific mailing address to send Copy A (you'll learn more about the various copies and to whom they belong in just a moment) to the IRS may differ according to the payer's location. It is advisable to refer to the Instructions for Form 1099-MISC. It may be more convenient for you to file electronically. For you to do that, you must have certain software that can generate a file according to the specifications found in Pub. 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G.
1099 has several "copies." Here's the right way to distribute those:
Copy A must be sent to the IRS. You may also need to send Copy 1 to your state's tax department. Copy B must be sent to the recipient. Copy 2 may also need to be used by the recipient for their state taxes, so make sure you give that to them. Finally, there is Copy C. It is for you, the payer, to retain for your records.
Filing due dates for 1099-MISC forms have also been updated for the 2023 tax year. The 1099-MISC must be sent:
- To recipients by January 31, 2024
- To the IRS by February 28, 2024 if filing by mail
- To the IRS by April 1, 2024 if e-filing
- The deadline for the 1099-MISC is different from the deadline for the 1099-NEC. The deadline for the 1099-NEC is January 31, 2024 for the three previously mentioned situations.
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