How to Report Income Payments Using Form 1099-MISC
Form 1099-MISC reports certain types of income. Think of it as a W-2 form for individuals or entities who aren't your employees. You may have to deal with this form if you're in business or self-employed and if you make certain payments to businesses, individuals, subcontractors, independent contractors or vendors. You have to submit your 1099-MISC forms to the Internal Revenue Service as well as to the party who received payment from you.
When Form 1099-MISC Is Required
A 1099-MISC form is required whenever you pay someone who is not your employee $600 or more during the year in the course of doing business. One payment in June of $300 would not require a 1099-MISC form, but if you make another $300 payment a month later, you must submit a Form 1099-MISC because the total of your payments reach $600. Common types of income that require this form include:
- Cash payments to professional fishermen
- Crop insurance proceeds
- Medical and health care payments
- Prizes and awards
- Proceeds paid to attorneys
- Proceeds paid to a partnership or estate
- Services performed by anyone who is not your employee, including parts and materials provided in the job
- Other types of payments not covered by any other information reporting document
You must also submit a 1099-MISC form to anyone you paid $10 or more in royalties or broker payments, not including dividends or tax-exempt interest.
If you sell $5,000 or more of consumer products to anyone for the purpose of resale, you'll have to submit a Form 1099-MISC if resale doesn't occur in a permanent retail store.
These rules apply only if you're engaging in business. If you pay your divorce attorney to end your marriage, you don't have to issue him a 1099-MISC for his services because that's a personal payment.
Nor do you have to issue 1099-MISC forms for payments made to corporations, with the exception of medical and healthcare payments and fees paid to attorneys. These forms are only required for individuals, partnerships, limited liability companies treated as partnerships, and sole proprietors.
If you've made any payments that don't fit neatly within these rules or seem to require any other information reporting document, don't just dash off a 1099-MISC. Check with a tax professional first.
Preparing 1099-MISC Forms
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 him. The W-9 will provide you with his legal name, address and taxpayer identification number – all information you'll need when preparing his 1099-MISC form. Keep track of your payments in your bookkeeping system so you can determine if payments fall under any of the categories that require reporting and how much those payments total for the year.
Deadlines for 1099-MISC Forms
If you report income in Box 7 of the 1099-MISC, "Nonemployee Compensation," the deadline for issuing 1099-MISC forms to recipients of these types of income was January 31, 2017. Most 1099-MISC forms fall into this category.
You had a little extra time to get them to the IRS in previous years, but not anymore, not even if you file them electronically. You can thank the Protecting Americans for Tax Hikes Act of 2015 for this change. PATH affects all information returns beginning with the calendar year 2016.
Penalties for Filing Form 1099-MISC Late
Don't panic if you missed the deadline. You'll have to pay a penalty but you can mitigate the damage if you act quickly. Here's the breakdown depending on exactly how late you are. You qualify for reduced penalties if your company had gross receipts of $5 million or less for the year:
- $50 for filing up to 30 days late
- $100 penalty for filing a 1099 more than 30 days late and before Aug. 1
Penalties can skyrocket after Aug. 1, so if you have a problem that might prevent you from filing before this date, contact a tax professional for help as soon as possible. Businesses can request a 30-day extension to file 1099-MISC forms with the IRS using Form 8809, but an extension doesn't give you additional time for submitting the1099 to the payment recipient, just the government. If you foresee a problem going forward, make sure to submit this form so you have as much time and leeway as possible.