What is the Form 1099-MISC?
- $10 in royalties
- $600 in
- contractor services performed (this person is NOT an employee)
- prizes and awards
- medical and health care payments
- payments to an attorney
- any fishing boat proceeds
- crop insurance proceeds
- $5,000 in direct sales of consumer products to a buyer for resale, other than a permanent retail establishment
Form 1099-MISC Sections, Explained
- Enter your business name and address information here
- Enter your EIN
- You should have already captured the recipient’s SSN or EIN from the W9 you had them complete when services were rendered. Enter that number here
- Enter the recipient’s name. If they are a sole proprietor with a dba enter their first and last name. Then on the next line enter dba ABC Company. If they are an LLC, enter the LLC’s business name
- While not required, the IRS prefers that you list an account number for the amounts listed on the 1099
- If the recipient has a FACTA requirement, check this box.
- If you paid $600 or more in rental payments of any kind you must report that amount in this box and send a 1099 to the owner. If you lease an office space you would send a 1099 to the landlord for the total amount of rent paid unless rent is paid to a real estate agent.
- The total amount of royalties you paid (if it was more than $10) is reported in this box. If you are a publisher, you would need to send your author a 1099 with the total amount of royalties paid through the year.
- Any income that doesn’t fall under any other classification on the 1099 must be reported in this box. Also reported in this box, is the FMV (fair market value) of any prizes or awards given out that weren’t dependent upon services performed. If you run a contest to your audience and the prize is access to your free course worth $750, you must send the winner a 1099 for the value of the course, $750.
- If the recipient of the 1099 has not and will not provide you their SSN or EIN, their payments are subject to tax withholdings. The taxes withheld are reported in this box.
- The total amount an individual received for their share of the sale of a catch.
- Issue a 1099 to any physician, medical supplier, or health care service provider that you paid $600 or more during the course of your business.
- Use this box to report payments of $600 or more to any person providing/performing services for your business that is not your employee. This can include payments to your attorney, accountant, graphic designer, contractors, and so on. Amounts listed in this box subject the recipient to self-employment taxes.
- If $10 or more is received by a broker instead of receiving dividends or tax exempt interest from a loan of a customer’s securities, use this box.
- If previous amounts listed on the 1099 are from sales of consumer products for resale to a person or place other than a permanent retail establishment, then check this box.
- Amounts of $600 or more paid to farmers by an insurance company
- Any excess over the base amount of the golden parachute payment. In general terms, a golden parachute payment is a payment to a disqualified individual contingent on the control of a corporation that was three times the individual’s base amount.
- Payments made to an attorney of $600 or more in connection with legals services provided for your business.
- This box is not required to be completed but it represents the total amount deferred of $600 or more for the non-employee under a non-qualified plan
- The total amount deferred that is included in income under section 409A
- If you are required to withhold state income tax from payments reported on the 1099, use this box
- Your identification number with the reporting state
- The amount of income attributable to a specific state
Understanding Form 1099-MISC for business owners
- Box 7 for Non-employee compensation is likely the only box you will use as a business owner
- A 1099 is due for services performed by non-employees for your business. If you paid someone to landscape your yard at your home, that is a personal expense and does not require a 1099. However, if you paid someone to landscape your office space, that is a service performed for your business and a 1099 is required.
- A 1099 is only provided to non-corporations. A sole proprietor, a single member LLC, a multi member LLC, or a partnership. If the service provider is a corporation or treated as corporation then a 1099 is not required, unless they are an attorney in which case entity doesn’t matter. How do you know what they are? Have every eligible recipient, based on dollar amount, complete a Form W-9.
- How you pay your contractors matters. If you pay your contractor through a 3rd party merchant processor then you are not responsible for filing a 1099. The merchant processor is responsible for the filing in this case. PayPal is the perfect example. If you paid your service provider via PayPal you are not required to send a 1099. PayPal will send a Form 1099-K when they reach the filing threshold of $20,000 and 200+ transactions. If you paid for services through multiple methods, you would send a 1099 for the monies not paid by a merchant processor.
- A Form W-9 should be secured prior to starting work. If work was already completed and you are unable to secure the SSN or EIN, you must document your attempts, in writing, of trying to secure the information. You will submit the 1099 anyway with the service providers name and address. The IRS will attempt to match the information based on name and address. You may be subject to back-up withholding.
- If you are unable to secure an identification number for a service provider, you will have to withhold income taxes at a flat rate of 28%. You would send the withheld taxes to the IRS with Form 945.
- If the service provider doesn’t live or work in the US at any point during the year, do not send them a 1099.
- Secure a Form W-9 before paying a service provider and from every service provider (you can find the Form W-9 here )
- Setup a tracking system within your accounting system. Most software today will allow you to create a vendor for the service provider and mark their account as “tracking for 1099”. This makes running reports at year end a breeze
- Prepare 1099s to send to service providers by January 31st due date. Contact us to do it for you or you can use a service like track1099.com (not an affiliate link)
- The IRS needs a summary of all 1099s you sent submitted on Form 1096 by January 31st if your 1099s have box 7 completed or March 31st for all others.
- Celebrate! This part of the tax season is over. Until next year.
1099 Tax Form Worksheet
I’ve created this FREE worksheet to help you with your 1099 Tax forms. Just fill in your information to see if you need to file a 1099 or not (and what your totals are!).
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