What Are Income Payments on Form 1099?

Income Payments on Form 1099 Explained

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Income payments on Form 1099 are payments from a business to an entity or individual who is not an employee. These payments are recorded on a 1099-MISC or a 1099-NEC, depending on the kind of payment. Then the form must be submitted to both the Internal Revenue Service (IRS) and the party they paid.

Learn more about these kinds of payments and the rules regarding them.

What Are Income Payments on Form 1099?

Income payments on Form 1099 are payments made from a business to someone who's not an employee of the company, such as other businesses, individuals, freelancers, subcontractors, independent contractors, or vendors.

These payments are reported to the IRS using Form 1099-MISC, Miscellaneous Payments, or Form 1099-NEC, Nonemployee Compensation. These are information forms similar to a W-2 form.

Income payments are reported on Form 1099-MISC

Who Reports Income Payments on Form 1099?

A 1099 form is required whenever you pay someone who isn't your employee $600 or more during the year in the course of doing business.

For example, one payment in June of $300 would not require a 1099 form, but you'd hit the threshold if you make another $300 payment later in the year. You must submit a Form 1099 because the payments total $600.

Since 1982, all miscellaneous payments were required to be reported on Form 1099-MISC. But starting with tax year 2020, the IRS requires nonemployee compensation—in other words, payment to freelancers or contractors—to be reported on Form 1099-NEC. This is because the Protecting Americans from Tax Hikes (PATH) Act accelerated the deadline for filing information on nonemployee compensation to Jan. 31.

Form 1099-MISC should be used for reporting:

  • Rents
  • Prizes and awards
  • Other income payments
  • Fishing boat proceeds
  • Medical and health care payments
  • Crop insurance proceeds
  • Proceeds to an attorney
  • Section 409A deferrals
  • Nonqualified deferred compensation

You also must submit a Form 1099-MISC if you sell $5,000 or more of consumer products to anyone for the purpose of resale, if resale doesn't occur in a permanent retail store.

These rules apply only if you're engaging in business. For example, you don't have to issue a 1099-MISC to your divorce attorney for services provided in ending your marriage because that's considered a personal payment.

You generally don't have to issue 1099-MISC forms for payments made to corporations for services rendered. Nor do you need to file a 1099-MISC for payments such as rent or life insurance payments. For the most part, 1099-MISCs are only required for individuals, partnerships, limited liability companies treated as partnerships, and sole proprietors.

If you have payments to freelancers, independent contractors, or attorneys, report it in Box 1 on Form 1099-NEC.

Requirements for Filing Form 1099

First, you'll need Form W-9s from all your vendors, contractors, and other payment recipients. Ask each of them to complete one for you at the time you begin doing business with them.

The W-9 will provide you with their legal name, address, and taxpayer identification number—all information you'll need when preparing their 1099 forms.

Keep track of your payments in your bookkeeping system so you can determine if they fall under any of the categories that require reporting and how much those payments total for the year.

Don't just dash off a 1099-MISC if you've made any payments that don't fit neatly within these rules or seem to require any other information reporting document. Check with a tax professional first.

The deadline for issuing 1099-NEC forms is Feb. 1, 2021. You have until March 1 if filing 1099-MISC on paper, or until March 31, 2021, if you file electronically.

Penalties for late payments can skyrocket after August 1, so contact a tax professional for help as soon as possible if you have a problem that might prevent you from filing before this date.

Businesses can request a 30-day extension to file 1099 forms with the IRS using Form 8809, but note that an extension doesn't give you additional time for submitting the 1099 to the payment recipient, just to the government.

Be sure to submit this form so you have as much time and leeway as possible If you foresee a problem going forward.

Key Takeaways

  • Income payments are reported on 1099 forms.
  • For independent contractors and other nonemployees, the information is filed on Form 1099-NEC.
  • For other miscellaneous payments (such as prizes or other income payments), use Form 1099-MISC.
  • The forms each have different deadlines, so carefully note the filing deadline for the form you choose.

Article Sources

  1. IRS.gov. "Instructions for Forms 1099-MISC and 1099-NEC (2020)." Accessed Sept. 13, 2020.

  2. IRS.gov. "About Form 1099-MISC, Miscellaneous Income." Accessed Sept. 13, 2020.

  3. IRS.gov. "Instructions for Forms 1099-MISC and 1099-NEC." Accessed Sept. 13, 2020.

  4. IRS.gov. "Increase in Information Return Penalties." Accessed Sept. 13, 2020.