Who Gets A 1099-Misc?
Form 1099-Misc is the most widely used of the information reporting forms for payments to independent contractors from a trade or business. The form is filed between January 1st and February 28th. Failure to file this form with the IRS can result in fines and penalties of up to $250,000 and backup withholding of 28% of the all the dollars that should have been reported. This amounts to yet another business tax or at the very least the use of resources. What with having to worry about yet another reporting requirement and/or finding an accountant to handle the extra work.
The whole process is easier if you have collected the proper information from the individual, partnership, LLC, or estate that you paid during the calendar year and now need to share with the IRS. Use IRS form W-9 to collect the name, address and tax identification number required for each 1099-Misc. I have found it best to hand a subcontractor a W-9 before handing them the signed check. But if that was not possible, you can make contact now as you gather the needed information to comply with this Federal Income Tax requirement.
Here I share some of the most used reporting items for small business when reporting and using form 1099-Misc.
Non-employee Compensation or Independent Contractor
Amounts of $600 or more paid for repairs or maintenance; for fees, commissions, prizes and awards for services performed by non-employees is by far the most reported area used by small businesses filing form 1099-Misc. This includes work for plumbing, electrical, carpentry, equipment maintenance, accounting, gardening, and any other service you paid to anyone during the year that was not an employee. The dollar sum paid is reported in box 7. Each vendor paid receives a 1099-Misc. Some of the other expenses reported in box 7 include those paid for oil and gas working interest and for entertainment facility that you treat as compensation to a non-employee. Generally, amounts reportable in box 7 are subject to self-employment tax.
Deferred compensation (Section 409A) is reported in box 7 and box 15. Golden parachute payments are also reported in box 7.
The second most reported item on the 1099-Misc is the reporting of rents of $600 or more for all types unless the rents are paid to a real estate agent. Rents are reported in box 1 of the 1099-Misc. Coin-operated amusements are also reported in box 1.
Royalties of $10 or more are reported in box 2. Caution, do not report oil or gas payments for a working interest in box 2. These are reported in box 7. Do not report timber royalties made under a pay-as-cut contract; these are reported on Form 1099-S, Proceeds From Real Estate Transactions.
Use box 3 to report $600 or more of payments that are not reportable in one of the other boxes on the form. Prizes, awards and personal injuries are what I see most often reported here.
Federal Income Tax Withheld
Box 4 is where backup withholding is reported. If you did not acquire a tax identification number from someone you paid during the year that meets the reporting requirement, you are subject to withhold and pay the IRS 28% of the money owed or paid to them. The backup withholding mentioned earlier. Ouch!
Fishing Boat Proceeds are reported in box 5. Box 6 is the reporting of $600 or more of medical and health care payments made in the course of your trade or business to each physician or other supplier or provider of medical or health care services.
Box 8 is where substitute payments in lieu of dividends or interest is reported if the amount is at least $10 received by a broker for a customer.
If you make direct sales of $5,000 or more during the calendar year to a person, you need to check box 9 of the 1099-Misc. to report dealings.
Gross Proceeds Paid to an Attorney
Another common item to report will be any gross proceeds paid to an attorney in connection with legal services regardless of whether the services are performed for the payer. And the exemption from reporting payments made to corporations do not apply to payments for legal services. The proper reporting is attorneys’ fees in box 7 or gross proceeds in box 14.
There are a few exceptions to what is or is not reportable. The most important thing to know is when to report and what to report. I include a quick summary taken from the IRS.gov website that sums up the highlights.
For more information and/or help with filing any of your 1099 Information reporting, contact us at 330-494-5335.
|Form||Title||What to Report||Amounts to Report||Due Date to IRS||Due Date to Recipient (unless indicated otherwise)|
|1099-MISC||Miscellaneous Income (Also, use this form to report the occurrence of direct sales of $5000 or more of consumer goods for resale.)||Rent or royalty payments; prizes or awards that are not for services, such as winnings on TV or radio shows.||$600 or more, except $10 or more for royalties||February 28||January 31|
|Payments to crew-members by owners or operators of fishing boats including payments of proceed from sale of catch.||All amounts|
|Payments to a physician, physician’s corporation, or other supplier of health or medical services. Issued mainly by medical assistance programs or health and accident insurance plans.||$600 or more|
|Payments for services performed for a trade or business by people not treated as its employees. Example: fees to subcontractors or directors, and golden parachute payments.||$600 or more|
|Fish purchases paid in cash for resale.||$600 or more|
|Substitute dividend and tax-exempt interest payments reportable by brokers||$10 or more|