Mastering Form 1099-MISC: The Essential Guide

IRS Form 1099-MISC, introduced in 1918, is a type of 1099 used to report various types of miscellaneous income. Prior to Tax Year 2020, Form 1099-MISC reported non-employee compensation in box 7. Now, non-employee compensation has its own form: the 1099-NEC. This form is issued by the payer, or known as a business, and given to a recipient, known as a contractor.

What is IRS Form 1099-MISC?

IRS Form 1099-MISC, Miscellaneous Information, previously known as Miscellaneous Income prior to tax year 2021, is used to report certain types of miscellaneous income, such as rents, royalties, and so on.

IRS Form 1099-MISC Copy A
Image of Form 1099-MISC Copy A

What information is reported on Form 1099-MISC?

The information on Form 1099-MISC is broken up into three main sections: payer information, recipient information, and amounts boxes.

The left side of the form has boxes for both the payer’s and recipient’s contact information and TINs. There are also 3 other boxes: account number, box 13 – FATCA filing requirement checkbox, and 2nd TIN notice checkbox.

The top right has a box where the payer can indicate the tax year being filed. The remainder of the right side of the form has the following amounts boxes:

  • Box 1 – Rents
  • Box 2 – Royalties
  • Box 3 – Other income
  • Box 4 – Federal income etax withheld
  • Box 5 – Fishing boat proceeds
  • Box 6 – Medical and health care payments
  • Box 7 – Payer made direct sales totaling $5,000 or more of consumer products to recipient for resale (checkbox)
  • Box 8 – Substitute payments in lieu of dividends or interest
  • Box 9 – Crop insurance proceeds
  • Box 10 – Gross proceeds paid to an attorney
  • Box 11 – Fish purchased for resale
  • Box 12 – Section 409A deferrals
  • Box 14 – Excess golden parachute payments
  • Box 15 – Nonqualified deffered compensation
  • Box 16 – State tax withheld
  • Box 17 – State/Payer’s state no.
  • Box 18 – State income

Where do I report non-employee compensation?

You might be looking at the above list and asking yourself: “where’s the bullet point for non-employee compensation?”

Very recently, the IRS removed the ability to report non-employee compensation amounts on Form 1099-MISC. Now, it is reported on its own form, the Form1099-NEC, Nonemployee Compensation. 

Form 1099-MISC box 7 previously was used to report nonemployee compensation, but under the current IRS revision of 1099-MISC, box 7 contains a simple checkbox system to indicate if the payer made direct sales totaling $5,000 or more of consumer products to the recipient for resale.

It’s important to ensure you’re using the correct type of Form 1099 before completing a filing in order to avoid needing corrections.

If you’re unsure which form you need to complete for recipients, we recommend checking out our 1099-MISC vs 1099-NEC comparison.

Selecting the correct Form 1099 to report each business scenario is the biggest hurdle, but there is one case where either form will satisfy IRS requirements. According to the IRS, “you may either file form 1099-MISC or 1099-NEC to report sales totaling $5,000 or more of consumer products to a person on buy-sell, deposit-commission, or other commission basis for resale.”

The one big catch: if you opt to use 1099-NEC to file the scenario above, you must file before January 31st, as the two forms have different reporting deadlines.

Who needs to file Form 1099-MISC with the IRS?

If during the course of trade or business, the business made any of the following types of payments, then they should complete a Form 1099-MISC filing.

  • At least $10 in royalties
  • At least $600 in
    • Rents
    • Prizes and awards
    • Other income payments
    • Cash paid from a notional principal contract to an individual, partnership, or estate
    • Fishing boat proceeds
    • Medical and health care payments
    • Crop insurance proceeds
    • Gross proceeds paid to an attorney
    • Section 409A deferrals
    • Nonqualified deferred compensation

Are there situations which do not require filing a 1099?

There are a couple of situations when the payer is not required to file a Form 1099. These include when the payer was:

  • Not engaged in trade or business and
    • Payment was made to an incorporated business not for medical or legal services
    • Sum of all payments to an individual or unincorporated business was less than $600 for the tax year

Are there 1099-MISC exceptions to filing?

If a business falls under an S-corporation or C-corporation, the business will be exempt from filing forms 1099-MISC.

Who needs to file Form 1099-MISC with the state?

If the employer chooses to e-File using the IRS FIRE (Filing Information Returns Electronically) system and enroll in the Combined Federal/State Filing (CF/SF) Program, any applicable forms will be forwarded to the corresponding states.

Even though some states are in the CF/SF program, additional action may still be required from the business. We recommend double checking the state of business to avoid that surprise penalty.

If the employer chooses to paper file, then they cannot utilize the CF/SF program. In this case, the employer must verify reporting requirements with the state to ensure that these are met. 

Be sure to verify that your state of business supports the CF/SF program for this form type, and always check for any additional action needed to meet state requirements.

Who should receive IRS Form 1099-MISC?

Below is a breakdown of who should be issued a 1099-MISC based on the IRS guidelines. For each person in course of a business to whom they have paid the following during the year:

  • At least $10 in royalties
  • At least $600 in
    • Rents
    • Prizes and awards
    • Other income payments
    • Cash paid from a notional principal contract to an individual, partnership, or estate
    • Fishing boat proceeds
    • Medical and health care payments
    • Crop insurance proceeds
    • Gross proceeds paid to an attorney
    • Section 409A deferrals
    • Nonqualified deferred compensation

As previously mentioned, Form 1099-MISC is no longer used to report nonemployee compensation amounts. If your business had independent contractors throughout the year, then you should use Form 1099-NEC, Nonemployee Compensation, to report these amounts.

Most of the requirements are judged by $600 worth of service, but there are a few exceptions to this rule. These exceptions are as follows:

  • Royalties (Box 2) — a $10 payment to a property for permission to use that property. This is not limited to physical but intellectual property as well.
  • Backup withholdings (Box 4) – if the business withheld money from a person because of a backup court order.
  • Excess Golden parachutes payments (Box 13) – if the business or entity exceeded the average annual compensation to an employee.

What if contractor work equals less than $600?

As previously stated, the payer is only required to issue a 1099-MISC if there was over $600 paid out to the contractor. In most cases where less than $600 was paid out, the payer is not required to issue a 1099-MISC. However, that does not mean the contractor is able to disregard this income when it comes time to report. The payee is required by the IRS to report all payments – no matter the amount received. Failure to report income can result in a 20% penalty of the underpayment.

Should an employee receive Form 1099-MISC?

The short answer is no, an employee should not receive a Form 1099-MISC. Instead, they should receive a Form W-2. If the payer withheld part of Social Security and Medicare taxes from the wages, then the individual should receive a W-2.

Can I e-file Forms 1099-MISC?

Submitting 1099-MISC forms online can be very simple by taking advantage of the IRS FIRE (Filing Information Returns Electrically) System.

The easiest e-file option is to find an approved IRS transmitter to submit the filing on your behalf. Typically, you will just need to upload recipient data and the transmitter should take care of the rest. All you need to do is wait for a response from the IRS. Once you receive an “Accepted” status, your filing obligations for Form 1099-MISC are satisfied.

However, if the filing is returned with an “Accepted with Errors” status, you must follow up on the errors, make corrections, and submit them back to the IRS. If corrections were made to any Forms 1099-MISC, then the recipient must be issued the corrected form, as well.

Can I submit a paper filing?

Employers may choose to paper file their Form 1099-MISC filing to the IRS if their total form count is less than the 250-form threshold.  E-Filing is encouraged by the IRS, but if you have less than 250 forms to file, then paper filing is an option.

When choosing to mail in forms, make sure to include an IRS Form 1096 as the transmittal/cover sheet and only Copy A of the Forms 1099-MISC. If you are wondering why there are so many copies, but only Copy A gets sent to the IRS, check out our article, File and Distribute Form 1099 to learn more.

Determining where to send your filing isn’t a one-stop distribution. The mailing address is dependent upon the filer’s address; specifically, the state. Find your state in the graphic below for the correct IRS mailing address for your filing.

Mail In Form 1096 & 1099 by State
Mail In Form 1096 & 1099 by State

If you have any questions about completing the transmittal, Form 1096, be sure to review our essential guide: Mastering Form 1096. Our series of essential guides will help you to master any forms you have questions or uncertainties about.

How is the mailable 250-form threshold calculated?

Businesses reporting less than 250 forms may opt to mail in Copy A directly to the IRS. It’s important to note that paper filing is a slower process, while e-Filing is much faster AND recommended by the IRS.

The 250-form threshold applies to each form type separately. For example, a business filing 200 Forms 1099-MISC and 200 Forms 1099-A will still fall under the 250-form threshold, because each type is counted independently. However, if one type of form is above the 250-form threshold, then that type must be sent electronically.

Similar to how the 250-form threshold is calculated, no form type shares the same cumulative form counts – even original forms and corrections are counted separately. For example, a business that reported 500 Forms 1099-MISC is required to e-File because the form count is over 250. Considering that an e-File has a quicker turnaround time, the IRS may return 50 forms that need a correction. In this case, the business may choose to file these 50 corrections via mail, because these 50 forms now fall under the 250-form e-File threshold.

Although, it’s important to note that the IRS generally recommends filing the corrections using the same medium as the original forms. If you e-filed the original forms, then you should e-file the corrections and vice versa if the original forms were paper filed.

IRS Mail in Threshold
How to calculate IRS mail in threshold

What are the paper filing form requirements?

The following is a short list of requirements for filing via mail:

  • Handwritten forms are accepted but must be legible for machine processing
  • Data must be in the middle of blocks
  • Do not use “$” for reporting amounts
  • Do not use “0” or “None” for blank reporting
  • Do not staple or fold forms

Please note that this is just a sample. There are entire publications filled with requirements that businesses must follow when filing forms with the IRS. Paper filing can be cumbersome, so we recommend finding an e-Filing software provider.

Due to the extensive requirements that must be followed for the filing to be accepted, we do not recommend sending forms by mail.

Can I download Form 1099-MISC?

When looking for PDFs of Form 1099-MISC, we recommend going to the IRS website and download copies that can be filled out and mailed to recipients.

However, when choosing to mail in forms to the IRS, the forms are scanned by a machine and must meet certain requirements. One big detail is the type of red ink you see on the paper. In order to satisfy IRS form requirements, we recommend ordering forms directly form the IRS.

Using unofficial forms can result in fines and penalties against the business, even if the filing was mailed on time with accurate information.

What are the 1099-MISC deadlines?

Traditionally, the filing deadlines for 1099-MISC are as follows:

  • Furnish Recipient Copies – January 31st
  • Submit a Paper Filing – February 28th
  • Submit an Electronic Filing – March 31st

If these deadlines fall on a weekend or legal holiday, then the due date is typically the following business day. Check out our annually updated deadlines article for the most up-to-date information.

If I filed Forms 1099-MISC late, are there penalties?

Any type of official form being sent to the IRS is definitely going to be tracked for their records. In order to make sure businesses do not disregard their filing obligation, the IRS will issue fines and penalties for employers who miss the deadline. Be aware that should any of the deadline dates fall on a weekend or holiday, the deadline is postponed until the following business day.

Check out the graphic below to see how quickly fines can accumulate based on a small sample size of only 10 forms the business should have filed.

IRS Failure to File chart
IRS Failure to File Fine Amount

How do I make corrections to Form 1099-MISC?

Even with careful combing of each individual form, mistakes can happen. No matter the case, there is an easy way to make corrections to Form 1099-MISC:

  • If you submitted your original filing electronically, then you should edit your filing accordingly with the original vendor.
  • If you submitted your original filing via mail, then you should complete a new form and include the updated information.
    • Once this has been completed, simply check the “Corrected” box at the top of the form. Always include a new Transmittal Form 1096 when mailing in corrections to the IRS.

Employers must give the recipient an updated copy of this form by mail or e-Delivery to keep for their records.

Frequently Asked Questions

What is the difference between Form 1099-MISC and Form 1099-NEC?

Form 1099-MISC reports a variety of different income amounts, whereas Form 1099-NEC only reports nonemployee compensation amounts.

What is the difference between Form 1099-MISC and Form 1099-K?

IRS Form 1099-K, Payment Card and Third Party Network Transactions, is used to report payments through means of debit, credit, or stored-value cards/gift cards. If the payer uses one of these forms of payment while still meeting the $600 threshold, the payer is subject to filing a 1099-K and not a 1099-MISC. Payers should file and furnish for each individual or business to whom they shared a card terminal.

What summary or transmittal form do I need?

When you submit a paper filing of Forms 1099-MISC, then you should include a Form 1096 as your transmittal, or summary form.

Conclusion

Once you have submitted these forms to the IRS, either electronically or via mail, and have received your “Accepted” status, then you have met all of the IRS requirements for these forms.

If you’re looking for a broken-down 1099-MISC vs 1099-NEC guide in a downloadable format, make sure to download our PDF guide below.

BoomTax, The Boom Post, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors prior to engaging in any transaction.

Leave a comment