How to Prepare 1099-MISC Forms - Step by Step
Form 1099-MISC "Miscellaneous Income" is the form businesses use to report payments to what the IRS calls "non-employees." The form is simple to complete; the major issue businesses have is who to send it to and when. Because this is a "miscellaneous" form, there are several types of payments that require a 1099-MISC.
Due Dates for 1099-MISC forms
Gathering Information for preparing 1099-MISC forms
The information for this form comes from your business records for non-employee payments for each person or business you pay for services. You might be paying these individuals under "Professional Fees" or "Other Payments." Be sure to keep track of these payments by vendor, so you can run a list at the end of the year.
Who Should Receive a 1099-MISC Form?
Form 1099-MISC includes information on compensation paid the previous calendar year to various individuals and entities. You must send a 1099-MISC form non-employees you paid $600 or more to in the calendar year. This form is NOT used for employee wages and salaries.
The 1099-MISC is most commonly used for independent contractors and vendors who are self-employed individuals (not corporations). For example, a janitorial service or web developer might be in this category. If you are confused about whether you should send a 1099-MISC to a specific business,
To determine if a specific person or business entity should receive a 1099-MISC form, read this article about who should receive a 1099-MISC form. If the person is eligible to receive this form, then determine if you paid this person $600 or more in the calendar year. Check with your tax professional if you're still in doubt.
Taxpayer ID Numbers and Form 1099-MISC
Before you prepare a 1099-MISC for someone, you must have a valid tax ID number for this person. You will need to get a W-9 form from each payee. This form includes name and address and the taxpayer ID.
The main area of confusion in this form is whether to use Box 3 or Box 7 for non-employee payments.If you are in doubt about whether to use Box 3 or Box 7 to report payments to a non-employee, note the term "services" in Box 7.
How to Deal with a Missing Taxpayer ID
Follow this series of steps set out by the IRS:
- Make every attempt to get the taxpayer ID, by sending the person a W-9 form.
- Document your efforts to obtain the W-9 form. Keep track of the attempts you made, including emails and mailings, to protect yourself from fines and penalties when the IRS contacts you.
- File the 1099-MISC on time, including zeros in the space where the taxpayer ID is required.
Information Needed for a 1099-MISC Form
Business Information. For each 1099-MISC you prepare, you will need to include information about your business:
- Your Federal Employer ID Number
- Your Business Name
- Your Business Address
Recipient's Tax ID Number This is the recipient's social security number or Federal EIN.
Payment Amounts Enter amounts paid in the appropriate box:
- Box 1 - Amounts you paid in rents (but not to a corporation)
- Box 2 - Royalties, from oil, gas, or mineral properties, or from intellectual property (patents, copyrights, trademarks)
- Box 3 - Other income payments, including prizes and awards (boxes 3 and 7); including sweepstakes payments (but not prizes and awards to employees; payments for participants in research studies, and punitive damages.
- Box 6 - Medical and health care payments, for payments to "each physician or other supplier or provider of medical or health care services. Include payments made by medical and health care insurers under health, accident, and sickness insurance programs..." but not to pharmacies for prescription drugs.
- Box 7 - Services performed by a non-employee (including parts and materials; include here expenses for the use of an entertainment facility that you treat as compensation to a non-employee.
- Box 9 - Direct sales of $5000 or more of consumer products for resale
- Box 14 - Gross proceeds paid to an attorney (explained below)
The IRS list includes other categories which you probably wouldn't use, like fishing proceeds, crop insurance proceeds, and golden
Federal Income Tax Withheld Enter any amounts of federal income tax withheld from payments to a recipient in Box 4.
Section 409A Deferrals and Income Boxes 15a and 15b require you to record Section 409A deferrals and income. Section 409A refers to a relatively new (2004) section of the Internal Revenue Code which has to do with non-qualified deferred compensation plans. Check with your tax adviser or a tax attorney if you think you may have to report non-qualified deferred compensation to someone.
State and Local Information In this section you will enter information about state income and withholding. Note that you may enter information for one or two states.If you must enter information for more than two states, you will need to complete another 1099-MISC for that information.
The state/Payer's state number (Box 17), Your business's state tax ID number is NOT your state sales tax ID number. Many states use the federal tax id number (EIN) and add digits to the end. Check with your state department of revenue for information.
What to Do Before You Send out Form 1099-MISC:
1. Check the year on the tax forms.
The IRS changes these forms every year, so make sure you have the current year's version. The year of the form is the year of the payment, NOT the year you are completing the form. If you are sending a contractor a 1099-MISC form in January 2019 for 2018 work, use the 2018 form.
2. Make sure you have a Form W-9 for each payee.
Before you send a 1099-MISC to anyone, you must have a W-9 form completed for that person. The purpose of Form W-9 is to verify the person's tax identification number. For an individual, the taxpayer ID might be a social security number. For a business, it might be an Employer ID number.
It's important to make sure you have this information; if you do not receive a W-9 form from a non-employee, or if the tax ID is not valid, you will be notified by the IRS that you must start backup withholding on payments to that individual.
3. Order 1099-MISC forms and use the correct form.
If you send out your own 1099-MISC forms (year-end tax summary for independent contractors), now is the time to order forms for this tax year. If you have a payroll service, check to make sure they have what they need to prepare these forms in January.
You can get 1099-MISC forms from office supply stores, or from the IRS. You cannot use a 1099-MISC form you download from the Internet because the red ink on Copy A is special and can't be copied. You must use the official form.
4. Check for errors before you submit to the IRS.
Common errors in completing 1099 forms include using the form for the wrong year, not using the correct form, sending the form to the wrong person or company, failing to include all requested information, and other form errors.
Print and Distribute Forms
The 1099-MISC is a multi-part form. Here are the parts of this form and where to send each:
Copy A is sent to the Internal Revenue Service
Copy 1 is sent to the state tax department(s)
Copy B is for the recipient.
Copy 2 is for the recipient to file with his/her state income tax return
Copies B and 2 must be received by the person no later than January 31 of the year after the tax year.
Copy C is for the payee (you).
Filing 1099-MISC Forms with the IRS
You can file 1099-MISC forms with the IRS through the Filing Information Returns Electronically (FIRE) system. The deadline for filing each year's 1099-MISC forms is January 31 of the following year.
The information provided in this article is for general purposes, to help you collect the information you need to prepare and print 1099-MISC forms. Every business situation is unique and this information does not attempt to be comprehensive or to tell you all the information that must be included on your 1099-MISC forms. Talk to your tax adviser for information about your specific situation.