Who Must Receive Form 1099-MISC?
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 give 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
- 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).
(See the IRS instructions for Form 1099-MISC for more details.)
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 professional 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 and finding out you don't have to.
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. You can't just take the person's information informally. If your business is audited, you will need to be able to show a W-9 form for everyone who did work for you. The W-9 form must contain a valid tax identification number.
Important Change in Dates for Submitting and Filing 1099-Misc Forms
- You must send out 1099-MISC forms to recipients before the end of January.
- Effective with the 2016 tax year, you must then send all 1099-MISC forms to the IRS along with the transmittal form 1096, no later than January 31 of the following year.
Details in this article about the annual payroll tax report deadlines for the current year.
Notice that the date the 1099-MiSC must be given to the recipients and the date it must be filed with the IRS is the same date. That means you must be sure you give the form to recipients earlier in January so that mistakes can be corrected before filing the forms with the IRS.
Preparing 1099-MISC Forms
If you haven't prepared 1099-MISC forms before, here's some information to help you get started. First, read this article on what you need to do before you prepare these forms, then follow these step-by-step instructions for preparing 1099-MISC forms.