What is form 1099-MISC?
Form 1099-MISC is a variant of Form 1099 used to report miscellaneous income paid to another individual in the form of royalties or broker payments instead of dividends or tax-exempt interest. Form 1099-MISC is used to report business payment—not a personal payment
What is miscellaneous income?
Miscellaneous income is any income received outside of typical employee wages. This includes:
- Prizes and awards
- Medical and healthcare payments
- Crop insurance proceeds
- Cash payments for fish (or other aquatic life) purchased from anyone who makes a living catching fish
- Cash paid from a notional principal contract to an individual, partnership, or estate
- Payments to an attorney
- Any fishing boat proceeds
How is form 1099-MISC different from form 1099-NEC?
Used to report payments for rents, royalties, prizes, medical/healthcare payments, backup withholding, and similar miscellaneous payments
Used to report payments made to non-employees like independent contractors and freelancers.
The due date for filing form 1099-MISC is February 28th of the tax year.
The due date for filing form 1099-NEC is January 31st of the tax year.
Who uses form 1099-MISC?
If you are running a business or trade, you must file 1099-MISC to report miscellaneous income paid to others during the year. You will also need to file Form 1099-MISC for each person you withheld federal income tax from under the backup withholding rules.
Who gets a 1099 MISC form?
You must issue Form 1099-MISC for utilizing janitorial services, third-party accounts and other services provided by workers who are not on your payroll. You need to issue form 1099-MISC for every payment that exceed $600.
What are the different parts of form 1099-MISC?
- Copy A of Form 1099-MISC appears on the IRS website in red. This copy of the form is not intended for print, rather it is for IRS use only.
- Copy 1 goes to the recipient’s state tax department
- Copy B is retained by the recipient
- Copy 2 goes with recipient's state tax return
- Copy C should be kept for your records
A 1099-MISC form has a series of boxes in which you need to fill out details depending on the type of payment that was made. That may include Rents in Box 1, Royalties in Box 2, Federal Income Tax Withheld on Box 4 and State Tax Withheld on Box 16.
What are the different boxes on form 1099-MISC?
- Box 1 (Rents) - This box is used to report rents from Real Estate
- Box 2 (Royalties) - Report royalties on copyrights and patents on Box 2.
- Box 3 (Other income) - Include any payments received as the beneficiary of a deceased employee, prizes, awards, or other taxable income.
- Box 4 (Federal income tax withheld) - This box shows backup withholding where applicable
- Box 6 (Medical and health care payments) – This Box reports any payments to a medical professional exceeding $600.
- Box 14 (Gross proceeds paid to an attorney) - Report any amounts of $600 or more paid to an attorney for legal services.
- Box 17 (State/Payer’s state no.) - Enter your State Tax Identification number on Box 17.
- Box 5 (Fishing boat proceeds)- Enter the amount of money paid towards fishing proceeds in Box 5.
- vBox 8 – Shows substitute payments in lieu of dividends or tax-exempt interest received by your broker on your behalf as a result of a loan of your securities.
- Box 9 - Check this box if you’ve made direct sales of $5000 or more of consumer products to a buyer (recipient) for resale.
- Box 10 - Report insurance payments exceeding $600 made to a farmer.
- Box 13 – Shows your total compensation of excess golden parachute payments subject to a 20% excise tax.
- Box 15a - completing this box is optional.
- Box 15b (section 409A income) – Report business deferred payments that would normally would be classified as section 409A income but wasn’t due a nonqualified deferred compensation plan failed to satisfy the requirements of section 409A.
- Box 16 (State tax withheld)- Report any state tax withheld from payments.
- Box 18 (State income) - Report state subject taxable income on box 18.
How do you file form 1099-MISC?
1099-MISC forms can be filed with the IRS through their Filing Information Returns Electronically (FIRE) system. You can also submit your 1099-MISC forms to the IRS by mail if you are filing less than 250 forms. Paper filers must include Form 1096 summarizing all the 1099-MISC forms that has been prepared.
Who are exempted from filing form 1099-MISC?
Some payments do not have to be reported on Form 1099-MISC, although they may be taxable to the recipient. This includes:
- Payments for merchandise, telegrams, telephone, freight, storage, and similar items
- Wages paid to employees
- Military differential wage payments made to employees while they are on active duty in the Armed Forces or other uniformed services
- Business travel allowances paid to employees
- Cost of life insurance protection
- Payments to a tax-exempt organization including tax-exempt trusts
- Payments made to or for homeowners from the Hardest Hit Fund or similar state program
- Compensation for injuries or sickness by the Department of Justice as a public safety officer disability or survivor's benefit
- Compensation for wrongful incarceration for any criminal offense for which there was a conviction under federal or state law
- Scholarship or fellowship grants.
- Canceled debt
What is the due date for filing 1099-MISC?
You need to issue the form to the recipient by January 31st; and to the IRS by the last day of February each year for work done during the previous tax year.
What is the penalty for late filing for form 1099-MISC?
If you don’t file Form 1099-MISC by the due date, you will be penalized by the IRS. you will also incur penalty if:
- You paper filed a form 1099-MISC when you were required to file electronically
- You failed to report or a taxpayer ID
- You reported an incorrect taxpayer ID
- You use a paper form that’s not machine-readable
The penalty is applied for each form and it’s based on when you file and if the information is correct. Small businesses may have lower penalties if they can show reasonable cause for the delay.
We understand that tax filing can be a energy-fraining endeavour. But the sooner you file your 1099 Form, the lesser you need to worry about getting on the wrong side of the IRS. File your form before the deadline and focus on what’s more important to you: your business growth.