Form 1099-MISC is a tax form used by businesses to report various types of miscellaneous income paid to individuals, such as rents, royalties, and other non-employee compensation, typically totaling $600 or more in a tax year. This form must be filed with the IRS and provided to the recipient.
Recent changes to IRS Form 1099-MISC: Miscellaneous information
In recent years, the Internal Revenue Service (IRS) has made significant changes to Form 1099-MISC, particularly with the introduction of Form 1099-NEC. These changes were made to simplify the reporting process for nonemployee compensation.
Form 1099-MISC vs Form 1099-NEC
Prior to 2020, businesses reported nonemployee compensation on Form 1099-MISC, Box 7.
However, starting in the 2020 tax year, the IRS reintroduced Form 1099-NEC specifically for reporting nonemployee compensation. Now, Form 1099-MISC is used to report other types of miscellaneous income, while nonemployee compensation is reported on Form 1099-NEC.
Form 1099-MISC vs Form W-2
Form 1099-MISC is used to report income paid to individuals who are not employees, such as independent contractors or freelancers. Form W-2 is used to report wages, tips, and other compensation paid to employees. The key difference is that Form W-2 includes withheld taxes and other deductions, whereas Form 1099-MISC does not.
Who uses IRS Form 1099-MISC?
Businesses, organizations, and individuals who make certain types of payments during the tax year must use Form 1099-MISC to report these payments to the IRS and the recipients. This includes:
- Businesses paying rent, royalties, or prizes and awards.
- Landlords receiving rental income.
- Organizations paying legal settlements or attorney fees.
- Self-employed individuals or independent contractors who get paid miscellaneous income.
What types of payments are reported on a Form 1099-MISC?
These types of payments are typically reported on Form 1099-MISC:
- Rent: Payments for real estate rentals, office space, equipment rentals, etc.
- Royalties: Payments for intellectual property such as books, music, and patents.
- Prizes and awards: Payments for winnings from contests or competitions.
- Other miscellaneous income: Payments not covered by other forms, such as legal settlements.
- Medical and healthcare payments: Payments to providers for medical services.
- Attorney fees: Payments made to attorneys in the course of business.
- Crop insurance proceeds: Payouts from insurance coverage for loss of crops.
- Cash payments for fish or other aquatic life purchased from anyone engaged in the trade or business of catching fish, as well as any fishing boat proceeds.
Direct sales (of more than $5,000 during the calendar year) of any consumer products to a buyer for resale anywhere other than a permanent retail establishment.
How to fill out Form 1099-MISC
To fill out Form 1099-MISC, follow these steps:
1. Payer’s information: Enter the payer’s name, address, and taxpayer identification number (TIN).
2. Recipient’s information: Enter the recipient’s name, address, and Social Security number or TIN.
3. Payment amounts: Enter the amounts for specific types of income in the appropriate boxes (e.g., Box 1 for rent, Box 2 for royalties, Box 3 for other income, etc.).
4. Tax withheld: If any federal income tax was withheld, enter the amount in Box 4. Enter any state tax withheld in Box 16.
5. Account number: This is optional and can be used if you have multiple accounts for a recipient.
6. Filing copy: You’ll have multiple copies of Form 1099-MISC:
- Copy A: Send to the IRS
- Copy B: Send to the recipient
- Copy C: Retain for your records
- Copy 1: Send to the recipient’s state tax department
- Copy 2: Send to the recipient for their state income tax return.
What to do if you make a mistake on a Form 1099-MISC
If you make a mistake on Form 1099-MISC, you’ll need to file a corrected form. Mark the "CORRECTED" box at the top of the form and fill in the correct information. Submit the corrected form to the IRS and provide a copy to the recipient. Detailed instructions for correcting errors can be found on the IRS website.
How to file Form 1099-MISC
Form 1099-MISC can be filed electronically or by mail:
- Electronically: Use the IRS Filing Information Returns Electronically (FIRE) system. Many payroll services, accounting software, and tax filing or tax preparation software and services also offer e-filing options.
- By mail: Send the completed forms to the appropriate IRS address. Make sure you include Form 1096, the transmittal form, if filing by mail.
When to distribute 1099-MISC forms
1099-MISC forms must be given to recipients by January 31st of the year following the tax year in which the payments were made. The forms must be filed with the IRS by the same date if filing electronically. If filing by mail, the due date is typically February 28th.
Frequently asked questions about Form 1099-MISC
What’s the difference between Form 1099-MISC and Form 1099-K?
Form 1099-MISC is used for miscellaneous income payments such as rent and royalties, while Form 1099-K is used for reporting goods and services sold via payment transactions made through third-party networks or credit card processors, provided the gross proceeds exceed $20,000.
How do you correct a mistake on a Form 1099-MISC after it’s been sent to the payee?
If a mistake is made on a Form 1099-MISC, you must file a corrected form. Mark the "CORRECTED" box at the top of the form and submit the corrected information to the IRS. Provide the corrected form to the payee as well.
Can local resources help with filing 1099-MISC forms?
Yes, local resources such as Certified Public Accountants (CPAs), tax professionals, and local IRS offices can assist with filing Form 1099-MISC. They can provide guidance on compliance and accurate filings.
How should tax-exempt interest be reported if it’s not included on Form 1099-MISC?
Tax-exempt interest should be reported on Form 1099-INT, not on Form 1099-MISC.
Are Medicare payments included on Form 1099-MISC?
Medicare payments made to healthcare providers should be reported on Form 1099-MISC if they meet the $600 threshold for the calendar year.
Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.