Who Must Receive Form 1099-MISC?

Tax 1099 Misc form
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I had a conversation with my CPA as I was doing my taxes. Since she knows I write about payroll tax issues, she was telling me her woes in trying to convince small businesses that they must send out 1099-MISC reports to almost everyone they do business with. It's the law, folks.

Form 1099-MISC is given to non-employees, like independent contractors and other businesses paid by your business. You must provide a 1099-MISC form to any of these individuals or businesses to whom you paid $600 or more in a tax year.

Who Must I Give a 1099-Misc To?

In addition to non-employees who do work for your company (like cleaning services, IT support, and maintenance services), 1099-MISC forms must be given for payments of $600 or more for other services (see the IRS instructions for Form 1099-MISC for more details)

  • Rents (box 1);
  • Services performed by someone who is not your employee (including parts and materials), box 7;
  • Prizes and awards (boxes 3 and 7), but not to employees
  • Other income payments (box 3);
  • Medical and health care payments (box 6);
  • Crop insurance proceeds (box 10);
  • Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish (box 7);
  • Generally, the cash paid from a notional principal contract to an individual, partnership, or estate (box 3);
  • Payments to an attorney. (See below)
  • Any fishing boat proceeds (box 5).

 The IRS says you must (my emphasis):

File Form 1099-MISC for each person to whom you have paid ...at least $600 in rents, services (including parts and materials)...other income payments... or, generally, the cash paid from a notional principal contract to an individual, partnership, or estate;... or gross proceeds of $600, or more paid to an attorney during the year.

And, the IRS continues, "Report on Form 1099-MISC only when payments are made in the course of your trade or business. Personal payments are not reportable." But, the person you paid, and to whom you owe a 1099-MISC, doesn't have to be in business. It can be someone who is self-employed or someone who doesn't file business taxes on a separate business tax form.

That means everyone your business paid more than $600 to during the year. EVERYONE. You don't have to send a 1099-MISC to a corporation, and there are some other exceptions.

Exceptions to the 1099-MISC Requirement

Here are some general exceptions to the requirement that you must give a 1099-MISC:

  • Corporations, including LLC's, treated as an S corporation or C corporation, but the exemption from reporting payments made to corporations does not apply to payments for legal services.
  • Payments for merchandise, telegrams, telephone, freight, storage, and similar items.
  • Payments of rent to rental agents,
  • Payments of wages/salaries to employees and payments for business travel to employees,
  • Payments to tax-exempt organizations.

Disclaimer: These exceptions are more complicated than indicated here, and there are exceptions-to-the-exceptions. Please be sure to contact your tax advisor before deciding not to send someone a request for a W-9. It's usually best to err on the side of sending one out.

What About 1099-Misc Forms for Attorneys?

The 1099-MISC instructions are specific about providing 1099-MISC forms for attorneys, but they distinguish between two different types of payments:

  • Fees: Any law firm or attorney to whom you paid $600 or more in fees during 2011 must be given a 1099-MISC form. Enter the total paid in Box 7. It doesn't matter if this attorney is a corporation; the 1099-MISC must be provided.
  • Gross Proceeds: If you paid an attorney $600 or more in "gross proceeds," you must also provide a 1099-MISC (Box 14). Gross proceeds are an amount an attorney receives as part of work on a settlement or sale (of a business or business assets, for example) or in the case where an attorney accepts funds on behalf of a client and takes a fee from the payment.

    Most Important: Before You Send out a 1099-Misc Form

    Before you give anyone a 1099-MISC for, you must first get a  W-9 form from that person, verifying taxpayer ID number.

    Important Change in Dates for Submitting and Filing 1099-Misc Forms

    Additional information on Reporting 1099-MISC Income from William Perez, Tax Planning expert