What is Form 1099-MISC

Don't be surprised if you hear from the IRS

Ryan D. Gorman, CPA

As tax professionals, every January we are bombarded with telephone calls from clients calling regarding payments they made during the year and whether a 1099 needs to be issued. This confusion and panic seems to repeat itself year after year. We also get calls from excited clients when they get home from vacation and find a proposed tax assessment notice from the IRS because a 1099 matching issue exists between the IRS and their tax return that was filed nearly nine months ago. A common response we hear is “WHAT DO YOU MEAN THEY SENT ME A 1099? I DIDN’T KNOW THAT!” Hopefully this article will give you some clarity on common 1099-MISC reporting questions we field annually from clients and can serve as a quick reference guide when January rolls around again soon.

When to file

The due date for filing Form 1099-MISC depends on the type of transaction being reported and the method for filing. Form 1099-MISC Box 7 non-employee compensation payments are required to be filed on or before January 31. For all other reported payments, file Form 1099-MISC by February 28 if you file on paper, or April 1, if you file electronically. Substantial penalties can be assessed for late filing so it is important to understand and comply with these rules in a timely manner.

Qualifying transactions

In general, you must file a Form 1099–MISC for each person in the course of your trade or business you pay during the year. Trade or business is an important distinction – personal payments are not reportable. You are engaged in a trade or business if you operate for gain or profit. Some of the most common reporting transactions are:

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  1. Royalties of at least $10
  2. Rents of at least $600
  3. Services performed of at least $600 by someone who is not your employee (including parts and materials)
  4. Prizes and awards of at least $600
  5. Other income payments of at least $600
  6. Medical and health care payments of at least $600
  7. Crop Insurance proceeds of at least $600
  8. Cash payments of at least $600 for fish you purchase from anyone engaged in the trade or business of catching fish
  9. Payments to an attorney (Attorney reporting requirements are beyond the scope of this article. Please consult your Henry+Horne tax advisor.)
  10. Direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment
  11. Issue to anyone where federal income tax was withheld regardless of the amount withheld under the backup withholding rules

Exceptions

As with anything in taxation, exceptions do apply. Payments for which you are not required to file a Form 1099-MISC include the following:

  1. Generally, payments to a corporation (including an LLC) that is treated as a C or S Corporation. (Some exceptions do apply.)
  2. Payments of rent to real estate agents or property managers. However, the real estate agent or property manager must use Form 1099-MISC to report the rent paid to the property owner.
  3. Wages paid to employees. Consult your Henry+Horne tax advisor immediately to help you determine the proper classification of your work force if any uncertainty exists. Penalties and compliance issues could be significant in this area if the improper classification is made.
  4. Business travel allowances paid to employees
  5. Cost of current life insurance protection
  6. Payments to a tax-exempt organization
  7. Do not use Form 1099-MISC to report scholarships or fellowship grants.

Talk to your tax advisor

The scope of this article provides guidance on the reporting requirements for Form 1099-MISC only. For example, a canceled debt incurred in your trade or business is not reportable on Form 1099-MISC. A separate Form 1099-C must be filed. Because the information provided here is not all-inclusive, it’s important to talk with your Henry+Horne tax professional every year regarding your specific situation.

Ryan D. Gorman, CPA, Manager, specializes in providing tax and consulting services to individuals, closely held businesses, partnerships, S Corporations, C Corporations and high net worth individuals. He can be reached at RyanG@hhcpa.com or (480) 483-1170.