Form 1099-MISC stands for "miscellaneous information" and is used to report various forms of payments over $600 to the IRS.
What is tax form 1099-MISC?
Form 1099-MISC is a common tax form used to record various forms of income that differs from the typical wage income. We call it the “grab bag of tax slips”; after all, the "MISC" stands for "miscellaneous information" (though it used to be called "miscellaneous income").
Businesses file form 1099-MISC with the IRS in order to report various types of payments over $600 they made to individuals or corporations:
Rents: rentals of space or equipment
Awards and prizes: from sweepstakes, lotteries, fantasy sports and the like
Medical and health care payments including Social Security and Medicare taxes
Income payments like crop insurance proceeds or research study payouts
Gross proceeds payments to attorneys
Cash paid for a notional principal contract (regardless if it's to an individual, partnership, or an estate).
Cash payments for fish and related aquatic life as well as proceeds from a fishing boat.
Payments of at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest
Earnings obtained through direct sales of consumer products for resale of over $5,000
In turn, the recipient of these types of income reports the amount on their tax return.
Are there any exceptions to the $600 limit?
A 1099-MISC needs to be filed if any of the following cases apply, even if the amount doesn't reach the $600 threshold:
Box 2 - Royalties: report payments of $10 or more to property owners in order to use that property. This applies to intellectual property as well.
Box 4 - Backup withholding: if you were required to withhold money from someone because of a backup court order, you must report the amount.
Box 13 - Excess golden parachute payments: if as an employer you exceeded the average annual compensation for your employee, you must report the amount.
1099-MISC is not for recording contractor payments
Businesses no longer use 1099-MISC to report non-employee compensation. As of 2020, these payments are reported under a new form: Form 1099-NEC.
That means if you, as a client, paid more than $600 to an independent contractor or a freelancer in a calendar year, you'll report this on a Form 1099-NEC slip, not a 1099-MISC.
Learn more about the 1099-NEC and how to generate one: What is IRS Form 1099-NEC: Everything You Need to Know
What are the differences between tax Form 1099-MISC and Form 1099-NEC?
Form 1099-MISC used to reserve box 7 for reporting nonemployee compensation greater than $600. However, the deadline to file 1099-MISCs differed from the filing deadline for Form W-2 (used for reporting employee compensation). To simplify things, the IRS re-introduced Form 1099-NEC.
The switchover to 1099-NEC forms occurred in the 2020 tax year. If you need to file taxes for 2019 or earlier, you should continue to use the old 1099-MISC forms to record those payments.
Who uses IRS tax Form 1099-MISC?
This form is a necessity for clients, trades, and businesses in order to report how much they paid to others within a calendar year. Small businesses, mid-sized companies, and large corporations file 1099-MISCs.
This form is also issued by investment trusts such as ones for pensions and profit-sharing and non-exempt farmers' cooperatives.
How to fill in IRS Form 1099-MISC?
Filling out the tax Form 1099-MISC
The form comes in three copies: Copy A, Copy B, and Copy C. You put the same information on both, but they go to different places.
Copy A goes to the IRS. Copy 1 goes to the recipient's state tax department, if needed, while Copy B stays with the recipient. Copy 2 is attached along with the recipient's state tax return, while Copy C stays with the payer.
The most important part of Form 1099-MISC is the boxes. They are used to indicate which kind of payment was made. For example, Box 1 is for rent, Box 2 for Royalties, Box 4 for Federal Income Tax Withheld, and Box 16 is for State Tax Withheld.
Another important checkbox on Form 1099-MISC is the one for the Foreign Account Tax Compliance Act filing requirement. If you have any foreign assets that may be subject to withholding under FATCA reporting, you need to acknowledge it through this form.
How do I file 1099-MISC forms?
To the payee
By default, you are expected to mail 1099s to the recipient's address. If you wish to deliver the 1099s electronically, you will need to obtain consent.
To the IRS
To file online, the Internal Revenue Service uses the IRS Filing Information Returns Electronically (FIRE) system. You'll need to use a third-party software or filing service to generate the forms because the IRS doesn't accept scanned or manually-completed versions.
If you're filing fewer than 250 forms, you don't have to efile. You can send in your forms by mail instead. You'll first need to request special scannable templates as well as an additional Form 1096 summary sheet template from the IRS website.
If you’re set up on the Deel platform, you can generate your 1099s for any US contractor (even if they’re located outside of the country) and file with the IRS entirely online.
What is the deadline to file?
To the payee
Provide a completed 1099-MISC to the payee by January 31st. The payee uses this slip to complete their own tax filing.
To the IRS
The due date to file with the IRS is February 28 if filing on paper, and March 31 if filing electronically.
What are the fines for missing the tax filing deadline for Form 1099-MISC?
If a business doesn't issue a Form 1099-MISC or files with incorrect information, the IRS may assess financial penalties. The late filing penalty ranges depending on how late the forms are submitted. If you need a filing extension, you can submit Form 8809 (Application for Extension of Time To File Information Returns) to the IRS by January 31 to request an extension.
How do I report a 1099-MISC on my tax return?
Income recorded in box 3 of the 1099-MISC is usually reported on the "Other income" line on your Form 1040.
In general, you should report all income earned, even if you don't receive a 1099-MISC. However, just because you must report the income doesn't mean that you will end up paying tax on it. You may qualify for various tax deductions or exceptions when you file.
I received a 1099-MISC but I'm an employee
Your employer should not be providing you with a 1099-MISC (though it's still possible to receive both). 1099-MISCs are for non-employees. Your employment income should be reported on a W-2 form, along with prizes, awards, business expense reimbursements, and travel allowances. If you receive a 1099-MISC, ask for a corrected W-2.
Tax forms you need as an independent contractor
As a payee and not the client, you are on the receiving end of forms, not on the providing end (though that being said, if you make payments of your own, you may also need to generate 1099-MISCs). You'll want to make sure that your clients file the correct forms for your earnings so your tax payments will be in order. If you earned self-employment income, your client should now be providing you with a 1099-NEC, not a 1099-MISC. However, you might also receive the following:
1099-G records any tax refunds you receive, including tax credits and tax offsets. This form is also used for income you receive from a state, local, or federal government.
Form 1099-B records income generated from the sale of various types of securities, and even some types of bartering that usually takes place online.
Form 1099-LTC covers income related to health and insurance payments, such as long-term care insurance, or payments received from a life insurance policy, in cases of unexpected and sudden deaths. Even if these payments may not be considered taxable income, it must still be reported.
Payments from your IRA pension and retirement plan are filled under 1099-R, along with any profit-sharing program, insurance contract, or annuity. If you receive disability payments, that income also gets recorded under this form.
Form 1099-DIV and 1099-INT
For banks and other financial institutions who issue dividends and distributions to investors, there is a Form 1099-DIV and a 1099-INT for interest income.
Form 1099-K is generated by payment settlement entities like credit card processors or marketplaces. If you generated more than $600 in credit card sales for example, expect a 1099-K form.
The real estate market is well acquainted with the 1099-S. This form is used by anyone who closed a sale or exchange of a property.
Handle 1099 forms like a pro with Deel
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Disclaimer: This information is provided for informational purposes and should not be considered tax advice or a substitute for official IRS publications. Consult with an accountant or tax professional such as a CPA for help.