Reporting Income Payments Using Form 1099-MISC

Form 1099-MISC is used to report certain types of payments made in the course of a trade or business. If you're in business or self-employed, you may need to submit this report to both the Internal Revenue Service and the person or business whom you paid.

When is Form 1099-MISC Required?

Businesses will need to fill out a Form 1099-MISC for persons, vendors, subcontractors, independent contractors, and others in the following circumstances:

$600 or more per year is paid for

• cash payments to fishermen
• crop insurance proceeds,
• medical and health care payments,
• prizes and awards,
• proceeds paid to attorneys,
• rents,
• services (including parts and materials), and
• other types of payments not covered by another information reporting document.

$10 or more per year is paid for

• broker payments in lieu of dividends or tax-exempt interest, and
• royalties

Reporting such payments is required if the recipient of the payment is not a corporation -- for example, when the recipient is an individual, partnership, a limited liability company treated as a partnership or sole proprietorship. Payments made to corporations are required in the case of medical and health care payments and in the case of legal fees paid to attorneys. Other types of payments made to corporations may be reported using Form 1099-MISC, but is not required.

Report Payments Made by Cash or Check, but Not Payments Made by Credit Card

Starting with the 2011 tax year, the IRS is instructing businesses that payments made via credit card and other third party payment processing services need not be reported on Form 1099-MISC. Refer to the Instructions for Form 1099-MISC, especially the What's New section.

Expanded 1099-MISC Reporting Starting in 2011 for Rental Property Owners Has Been Repealed

Rental property would have needed to issue a 1099-MISC for payments relating to their rental properties beginning in the year 2011, but this requirement has been repealed by the Comprehensive 1099 Taxpayer Protection and Replacement of Exchange Subsidy Overpayments Act of 2011.

Expanded 1099-MISC Reporting Starting in 2012 Has Been Repealed

1099 reporting would have been expanded starting with the year 2012, but this provision has also been repealed by the Comprehensive 1099 Taxpayer Protection and Replacement of Exchange Subsidy Overpayments Act of 2011. Prior to repeal, reporting would have been expanded to include payments made to corporations and as well as to include payments for goods and property. The 1099-MISC expansion was originally legislated as part of the health care reform package.

Steps to Take to Prepare for 1099-MISC Forms

You should request that your vendors, contractors and other payment recipients submit to you a Form W-9. The W-9 will provide you with the legal name, address and taxpayer identification number for the vendor, which is the information you will need when preparing any 1099-MISC forms.

You should also keep track of your payments in your bookkeeping system. You will need to know whether the payment falls under any of the categories listed above for reportable payments, whether your payments to a particular recipient reaches the $10 or $600 threshold for reporting, and finally you'll need to know the exact amount you paid the recipient for the year.

Penalties for Filing Form 1099-MISC Late

The following penalties will be in effect for the year 2011:

• $30 penalty for filing a 1099 not more than 30 days late;
• $60 penalty for filing a 1099 more than 30 days late and before August 1;
• $100 penalty for filing a 1099 on or after August 1;
• $250 penalty for intentional failure to file.

These Form 1099-MISC penalties were increased as part of the Small Business Jobs Act, and have not been repealed.

Deadlines for 1099-MISC Forms

• Provide the recipient with his or her copy of the Form 1099-MISC by January 31 reporting income for the previous calendar year.
• Mail the Form 1099-MISC to the IRS by February 28.
• Or electronically file 1099s with the IRS by March 31.

Businesses can request a 30-day extension to file 1099s with the IRS using Form 8809. An extension does not permit additional time for providing the 1099 to the recipient.

Form 1099-MISC Tax Resources

• Internal Revenue Code section 6041 relates to Form 1099-MISC requirements
• Internal Revenue Code section 6721 relates to the penalties for 1099s
• General Instructions for Form 1099-MISC from the IRS Web site