Tax Form 1099-MISC: Miscellaneous Income

Reporting Miscellaneous Income and Payments to the IRS

 

Form 1099-MISC is an information return used to report certain miscellaneous income/payments to the IRS. If you are an independent contractor, or you hire an independent contractor, you will most likely need to use this form.

You are required to file Form 1099-MISC for each person to whom you have paid at least $600 during the year in:

• Rents
• Services performed by someone who is not your employee (including parts and materials)
• Prizes and awards
• Other income payments
• Medical and health care payments
• Crop insurance proceeds
• Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish
• Generally, the cash paid from a notional principal contract to an individual, partnership, or estate
• Payments to an attorney
• Any fishing boat proceeds

You must also file Form 1099-MISC if any of the following apply:

• You paid at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest
• 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 withheld Federal income tax for a person under the backup withholding rules, regardless of the amount of the payment

Note that you should only use Form 1099-MISC (Miscellaneous Income) if the payments are made in the course of your trade or business. Generally, you are considered to be engaged in a trade or business if you operate for gain or profit. Do not report personal payments on Form 1099-MISC.

Form 1099-MISC has many boxes, so it is important to make sure you have entered the payment in the correct box. Some other types of payments, such as interest income, must be reported on a different 1099 information return (e.g., Form 1099-INT). For example, financial institutions reporting dividends and distributions must file Form 1099-DIV. Distributions from pensions, annuities, retirement or profit-sharing plans, IRAs, and insurance contracts must be reported on Form 1099-R. A payment settlement entity (PSE) must file Form 1099-K to report payments made in settlement of reportable payment transactions for each calendar year.

Form 1099-MISC: Nonemployee Compensation

Form 1099-MISC is commonly used to report “nonemployee compensation.” Nonemployee compensation is reported in Box 7 of Form 1099-Misc. To determine whether a person qualifies as an employee or an independent contractor, refer to IRS Publication 15-A (Employer’s Supplemental Tax Guide). Here are some examples of payments that should be reported in Box 7:

• Professional service fees, such as fees to attorneys (including corporations), accountants, architects, contractors, engineers, etc.
• Fees paid by one professional to another (such as fee-splitting or referral fees)
• Payments by attorneys to witnesses or experts in legal adjudication
• Payment for services, including payment for parts or materials used to perform the services (if supplying the parts or materials was incidental to providing the service)
• Commissions paid to nonemployee salespersons that are subject to repayment but not repaid during the calendar year
• A fee paid to a nonemployee, including an independent contractor, or travel reimbursement for which the nonemployee did not account to the payer (if the fee and reimbursement total at least $600)
• Payments to nonemployee entertainers for services
• Exchanges of services between individuals in the course of their trades or businesses
• Taxable fringe benefits for nonemployees
• Payments to an insurance salesperson who is not your common law or statutory employee
• Directors’ fees
• Payments to section 530 workers

If you receive any of these types of payments during the year, you must report the payments as income on your Federal and State tax returns (whether or not you receive Form 1099-MISC from the payer). Items that are reported in Box 7 are generally subject to Self-Employment Tax and may need to be reported on Schedule C of Form 1040.

Form 1099-MISC: Copies

Form 1099-MISC consists of 5 copies/parts:

Copy A: For Internal Revenue Service Center

Copy 1: For State Tax Department

Copy B: For Recipient

Copy 2: To be filed with recipient’s state income tax return, when required

Copy C: For Payer

For more information about Form 1099-MISC and reporting miscellaneous income, please see the IRS General Instructions for Certain Information Returns.

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