How to Report Income Payments Using Form 1099-MISC
Form 1099-MISC is an information form similar to a W-2 form, but for individuals or entities who aren't your employees. You might have to deal with it if you're in business or self-employed, and if you make certain payments to businesses, individuals, subcontractors, independent contractors, or vendors.
You must submit 1099-MISC forms to both the Internal Revenue Service and the party you paid.
When Form 1099-MISC Is Required
A 1099-MISC form is required whenever you pay someone who isn't your employee $600 or more during the year in the course of doing business as of 2019.
One payment in June of $300 would not require a 1099-MISC form, but you'll hit the threshold if you make another $300 payment a month later. You must submit a Form 1099-MISC because the payments totaled $600 when added together.
Common types of income that require this form include:
- Services performed by anyone who is not your employee, including parts and materials provided in the job
- Medical and health care payments
- Prizes and awards
- Proceeds paid to attorneys
- Proceeds paid to a partnership or estate
- 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, as of 2019.
You must submit a Form 1099-MISC if you sell $5,000 or more of consumer products to anyone for the purpose of resale as of 2019, if resale doesn't occur in a permanent retail store.
These rules apply only if you're engaging in business, not to individuals. 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.
Issuing 1099-MISC Forms to Corporations
You generally don't have to issue 1099-MISC forms for payments made to corporations for services rendered, but there are a few exceptions. A form is required for certain payments:
- Medical and healthcare payments (box 6)
- Fish purchases for cash (box 7)
- Attorney fees (box 7)
- Gross proceeds paid to an attorney (box 14)
- Substitute payments in lieu of dividends or tax-exempt interest (box 8)
Otherwise, 1099-MISCs are only required for individuals, partnerships, limited liability companies treated as partnerships, and sole proprietors.
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 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-MISC 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.
Deadlines for 1099-MISC Forms
The deadline for issuing 1099-MISC forms is January 31, 2020 if you report income in box 7, "Nonemployee Compensation." Most 1099-MISC forms fall into this category.
Otherwise, you have until February 28, 2020 if you're reporting income in any other box, or until March 31, 2020 if you file electronically.
Penalties for Filing Form 1099-MISC Late
Don't panic if you miss 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:
- $50 per return for filing up to 30 days late
- $110 per return for filing more than 30 days late but before August 1, 2020
- $270 per return for filing after August 1, 2020 or not at all
- $500 per return if you "intentionally disregard" your obligation to do so.
Penalties 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-MISC forms with the IRS using Form 8809, but 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.