1099 MISC Reporting

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1099 MISC Reporting

File Form 1099-MISC, Miscellaneous Income, for each person to whom you have paid during the year: At least $10 in royalties (see Box 2 on page 4) or broker payments in lieu of dividends or tax-exempt interest (see Box 8 on page 7);

At least $600 in rents, services (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, or, generally, the cash paid from a notional principal contract to an individual, partnership, or estate;

Any fishing boat proceeds; or Gross proceeds of $600 or more paid to an attorney. See Payments to attorneys on page 2.

This image is too large to be displayed in the current screen. Please click the link to view the image. Illustrated Form 1099-MISC for Ronald Green

In addition, use Form 1099-MISC to report that 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 must also file Form 1099-MISC for each person from whom you have withheld any federal income tax under the backup withholding rules regardless of the amount of the payment.

Be sure to report each payment in the proper box because the IRS uses this information to determine whether the recipient has properly reported
the payment. Trade or business reporting only. Report on Form 1099-MISC only when payments are made in the course of your trade or business. Personal payments are not reportable. You are engaged in a trade or business if you operate for gain or profit. However, nonprofit organizations are considered to be engaged in a trade or business and are subject to these reporting requirements. Other organizations subject to these reporting requirements include trusts of qualified pension or profit-sharing plans of employers, certain organizations exempt from tax under section 501(c) or (d), farmers’ cooperatives that are exempt from tax under section 521, and widely held fixed investment trusts. Payments by federal, state, or local government agencies are also reportable. Persons receiving rental income from real estate generally are considered to be in the trade or business of renting property. See page 3.

Exceptions. Some payments are not required to be reported on Form 1099-MISC, although they may be taxable to the recipient. Payments for which a Form 1099-MISC is not required include: Generally, payments to a corporation; but see Reportable payments to corporations on page 2; Payments for merchandise, telegrams, telephone, freight, storage, and similar items; Payments of rent to real estate agents, but see Regulations section 1.6041-1(e)(5), Example 5;

Wages paid to employees (report on Form W-2, Wage and Tax Statement);

Military differential wage payments made to employees while they are on active duty in the Armed Forces or other uniformed services (report on Form W-2);

Business travel allowances paid to employees (may be reportable on Form W-2);

Cost of current life insurance protection (report on Form W-2 or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.);

Payments to a tax-exempt organization including tax-exempt trusts (IRAs, HSAs, Archer MSAs, and Coverdell ESAs), the United States, a state, the District of Columbia, a U.S. possession, or a foreign government; and

Certain payment card transactions if a payment card organization has assigned a merchant/payee a Merchant Category Code (MCC) indicating that reporting is not required. A cardholder/payor may rely on the MCC assigned to a merchant/payee to determine if a payment card transaction with that merchant/payee is subject to reporting under section 6041 or section 6041A. For more information and a list of merchant types with corresponding MCCs, see Revenue Procedure 2004-43 available at www.irs.gov/irb/2004-31_IRB/ar17.html.

Payments made with a credit card or payment card and certain other types of payment, including third party network transactions, must now be reported on Form 1099-K by the payment settlement entity under section 6050W and are not subject to reporting on Form 1099-MISC. See the separate Instructions for Form 1099-K.

Fees paid to informers.

A payment to an informer as an award, fee, or reward for information about criminal activity is not required to be reported if the payment is made by a federal, state, or local government agency, or by a nonprofit organization exempt from tax under section 501(c)(3) that makes the payment to further the charitable purpose of lessening the burdens of government. For more information, see Regulations section 1.6041-3(l).

Scholarships.

Do not use Form 1099-MISC to report scholarship or fellowship grants. Scholarship or fellowship grants that are taxable to the recipient because they are paid for teaching, research, or other services as a condition for receiving the grant are considered wages and must be reported on Form W-2. Other taxable scholarship or fellowship payments (to a degree or nondegree candidate) are not required to be reported by you to the IRS on any form. See Notice 87-31, 1987-1 C.B. 475, and Regulations section 1.6041-3(n) for
more information.

Difficulty-of-care payments.

Difficulty-of-care payments that are excludable from the recipient’s gross income are not required to be reported. Difficulty-of-care payments to foster care providers are not reportable if paid for not more than 10 children under age 19 and not more than five individuals age 19 or older. Amounts paid for more than 10 children or more than five other individuals are reportable on Form 1099-MISC.

Canceled debt. A canceled debt is not reportable on Form 1099-MISC. Canceled debts are required to be reported on Form 1099-C, Cancellation of Debt, by financial institutions, credit unions, Federal Government agencies, certain agencies connected with the Federal Government, and an organization where the lending of money (such as finance and credit card companies) is a significant trade or business. See the Instructions for Forms 1099-A and 1099-C.

Reportable payments to corporations. The following payments made to corporations generally must be reported on Form 1099-MISC. Medical and health care payments reported in box 6.

Fish purchases for cash reported in box 7.

Attorneys’ fees reported in box 7.

Gross proceeds paid to an attorney reported in box 14.

Substitute payments in lieu of dividends or tax-exempt interest reported in box 8.

Payments by a federal executive agency for services (vendors) reported in box 7.

Federal executive agencies may also have to file Form 8596, Information Return for Federal Contracts, and Form 8596-A, Quarterly Transmittal of Information Returns for Federal Contracts, if a contracted amount for personal services is more than $25,000. See Rev. Rul. 2003-66, which is on page 1115 of Internal Revenue Bulletin 2003-26 at www.irs.gov/pub/irs-irbs/irb03-26.pdf for details.

Payments to attorneys. The term attorney includes a law firm or other provider of legal services. Attorneys’ fees of $600 or more paid in the course of your trade or business are reportable in box 7 of Form 1099-MISC. Gross proceeds paid to attorneys.

Under section 6045(f), report in box 14 payments that:

Are made to an attorney in the course of your trade or business in connection with legal services, for example, as in a settlement agreement

Total $600 or more, and

Are not reportable by you in box 7.

Generally, you are not required to report the claimant’s attorney’s fees. For example, an insurance company pays a claimant’s attorney $100,000 to settle a claim. The insurance company reports the payment as gross proceeds of $100,000 in box 14. The insurance company does not have a reporting requirement for the claimant’s attorney’s fees subsequently paid from these funds.

These rules apply whether or not the legal services are provided to the payer and whether or not the attorney is exclusive payee (for example, the attorney’s and claimant’s names are on one check) or other information returns are required for some or all of a payment under section 6041A(a)(1). For example, a person who, in the course of a trade or business, pays $600 of taxable damages to a claimant by paying that amount to a claimant’s attorney is required to furnish Form 1099-MISC to the claimant under section 6041 and furnish Form 1099-MISC to the claimant’s attorney under section 6045(f). For more examples and exceptions relating to payments to attorneys, see Regulations section 1.6045-5.

However, these rules do not apply to wages paid to attorneys that are reportable on Form W-2 or to profits distributed by a partnership to its partners that are
reportable on:

Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., or

Schedule K-1 (Form 1065-B), Partner’s Share of Income (Loss) From an Electing Large Partnership.

Payments to corporations for legal services.

The exemption from reporting payments made to corporations does not apply to payments for legal services. Therefore, you must report attorneys’ fees (in box 7) or gross proceeds (in box 14) as described earlier to corporations that provide legal services

Taxpayer identification numbers (TINs).

To report payments to an attorney on Form 1099-MISC, you must obtain the attorney’s TIN. You may use Form W-9, Request for Taxpayer Identification Number and Certification, to obtain the attorney’s TIN. An attorney is required to promptly supply its TIN whether it is a corporation or other entity, but the attorney is not required to certify its TIN. If the attorney fails to provide its TIN, the attorney may be subject to a penalty under section 6723 and its regulations, and you must backup withhold on the reportable payments.

Fish purchases. If you are in the trade or business of purchasing fish for resale, you must report total cash payments of $600 or more paid during the year to any person who is engaged in the trade or business of catching fish. Report these payments in box 7. You are required to keep records showing the date and amount of each cash payment made during the year, but you must report only the total amount paid for the year on Form 1099-MISC. “Fish” means all fish and other forms of aquatic life. “Cash” means U.S. and foreign coin and currency and a cashier’s check, bank draft, traveler’s check, or money order. Cash does not include a check drawn on your personal or business account.

Deceased employee’s wages. If an employee dies during the year, you must report the accrued wages, vacation pay, and other compensation paid after the date of death. If you made the payment in the same year the employee died, you must withhold social security and Medicare taxes on the payment and report them only as social security and Medicare wages on the employee’s Form W-2 to ensure that proper social security and Medicare credit is received. On the Form W-2, show the payment as social security wages (box 3) and Medicare wages and tips (box 5) and the social security and Medicare taxes withheld in boxes 4 and 6; do not show the payment in box 1 of Form W-2. If you made the payment after the year of death, do not report it on Form W-2, and do not withhold social security and Medicare taxes. Whether the payment is made in the year of death or after the year of death, you also must report the payment to the estate or beneficiary on Form 1099-MISC. Report the payment in box 3 (rather than in box 7 as specified in Rev. Rul. 86-109, 1986-2 C.B. 196). See the Example that follows. Enter the name and TIN of the payment recipient on Form 1099-MISC. For example, if the recipient is an individual beneficiary, enter the name and social security number of the individual; if the recipient is the estate, enter the name and employer identification number of the estate. The general backup withholding rules apply to this payment. Death benefits from nonqualified deferred compensation plans or section 457 plans paid to the estate or beneficiary of a deceased employee are reportable on Form 1099-MISC. Do not report these death benefits on Form 1099-R. However, if the benefits are from a qualified plan, report them on Form 1099-R. See the Instructions for Forms 1099-R and 5498. Example.

Before Employee A’s death on June 15, 2011, A was employed by Employer X and received $10,000 in wages on which federal income tax of $1,500 was withheld. When A died, X owed A $2,000 in wages and $1,000 in accrued vacation pay. The total of $3,000 (less the social security and Medicare taxes withheld) was paid to A’s estate on July 20, 2011. Because X made the payment during the year of death, X must withhold social security and Medicare taxes on the $3,000 payment and must complete Form W-2 as follows.

Box 1—10000.00 (does not include the $3,000 accrued wages and vacation pay)

Box 2—1500.00

Box 3—13000.00 (includes the $3,000 accrued wages and vacation pay)

Box 4—546.00 (4.2% of the amount in box 3)

Box 5—13000.00 (includes the $3,000 accrued wages and vacation pay)

Box 6—188.50 (1.45% of the amount in box 5)

Employer X also must complete Form 1099-MISC as follows.

Boxes for recipient’s name, address, and TIN—the estate’s name, address, and TIN.

Box 3—3000.00 (Even though amounts were withheld for social security and Medicare taxes, the gross amount is reported here.)

If Employer X made the payment after the year of death, the $3,000 would not be subject to social security and Medicare taxes and would not be shown on Form W-2. However, the employer would still file Form 1099-MISC.

Employee business expense reimbursements. Do not use Form 1099-MISC to report employee business expense reimbursements. Report payments made to employees under a nonaccountable plan as wages on Form W-2. Generally, payments made to employees under an accountable plan are not reportable on Form W-2, except in certain cases when you pay a per diem or mileage allowance. For more information, see the Instructions for Forms W-2 and W-3; Pub. 463, Travel, Entertainment, Gift, and Car Expenses; and Pub. 1542, Per Diem Rates. For information on reporting employee moving expense reimbursements on Form W-2, see the Instructions for Forms W-2 and W-3.

Independent contractor or employee. Generally, you must report payments to independent contractors on Form 1099-MISC in box 7. See the instructions for box 7 on page 6.

Section 530 of the Revenue Act of 1978 as extended by section 269(c) of P.L. 97-248 deals with the employment tax status of independent contractors and employees. To qualify for relief under section 530, employers must file Form 1099-MISC. Additional requirements for relief are discussed in Rev. Proc. 85-18, 1985-1 C.B. 518. Also see Pub. 15-A, Employer’s Supplemental Tax Guide, for special rules that may apply to technical service specialists and test proctors and
room supervisors. Transit passes and parking for independent contractors. Although you cannot provide qualified transportation fringes to independent contractors, the working condition and de minimis fringe rules for transit passes and parking apply to independent contractors. Tokens or farecards that enable an independent contractor to commute on a public transit system (not including privately operated van pools) are excludable from the independent contractor’s gross income and are not reportable on Form 1099-MISC if their value in any month is $21 or less. However, if the value of a pass provided in a month is greater than $21, the full value is includible in gross income and is reportable on Form 1099-MISC. The value of parking may be excludable from an independent contractor’s gross income, and, therefore, not reportable on Form 1099-MISC if certain requirements are met. See Regulations section 1.132-9(b),
Q/A-24.

Directors’ fees. You must report directors’ fees and other remuneration, including payments made after retirement, on Form 1099-MISC in the year paid. Report them in box 7.

Commissions paid to lottery ticket sales agents. A state that has control over and responsibility for online and instant lottery games must file Form 1099-MISC to report commissions paid, whether directly or indirectly, to licensed sales agents. For example, State X retains control over and liability for online and instant lottery games. For online ticket sales, State X pays commissions by allowing an agent to retain 5% of the ticket proceeds the agent remits to State X. For instant ticket sales, State X pays commissions by providing tickets to the agent for 5% less than the proceeds to be obtained by the agent from the sale of those tickets. If the commissions for the year total $600 or more, they must be reported in box 7 on Form 1099-MISC. See Rev. Rul. 92-96, 1992-2 C.B. 281.

Escrow agent; construction project. When an escrow agent maintains owner-provided funds in an escrow account for a construction project, performs management and oversight functions relating to the construction project, and makes payments for the owner and the general contractor, the escrow agent must file Form 1099-MISC for reportable payments of $600 or more. This requirement applies whether or not the escrow agent is a bank. If the contractor is the borrower of the funds, do not report on Form 1099-MISC any loan payments made to the contractor/borrower.

Rental property expense payments. Generally, if you receive rental income from real estate, you are considered to be in the trade or business of renting property and therefore have the same Form 1099-MISC reporting requirements as other taxpayers in a trade or business. Report on Form 1099-MISC payments of $600 or more for rental property expenses. But do not report these payments on Form 1099-MISC if you are an individual (including an active member of the Armed Forces or an employee of the intelligence community as defined in section 121(d)(9)(C)) and substantially all your rental income is from renting your main home on a temporary basis. Other exceptions may be provided in the future. For the latest information, go to www.irs.gov/form1099misc. Generally, these amounts should be reported in box 7, but see the box 7 instructions.

Indian gaming profits, payments to tribal members. If you make payments to members of Indian tribes from the net revenues of class II or class III gaming activities conducted or licensed by the tribes, you must withhold federal income tax on such payments. File Form 1099-MISC to report the payments and withholding to tribal members. Report the payments in box 3 and the federal income tax withheld in box 4. Pub. 15-A contains the necessary “Tables for Withholding on Distributions of Indian Gaming Profits to Tribal Members.”

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