If your business makes payments to third parties that are not employees, you may be required to file a 1099-MISC. If you aren’t sure what a 1099-MISC is, check out our post to find out what is a 1099-MISC. Once you have determined that your business needs to file a 1099-MISC, you should know what you need to prepare to file 1099-MISC.
What is needed to prepare a 1099-MISC?
The 1099-MISC is an informational form, which has four key types of information. Payer’s information, recipient’s information, payment information, and withholding information.
This information pertains to your business or the business who made payments on the form during the year.
You will provide the following information about the payer:
- The payer’s name. This name should match the business’s name used to file that business’s tax return.
- The payer’s street address, city, state, country, and ZIP code. Again, this should be the address for the business and not an individual who works for or owns the business.
- The payer’s telephone number. This is generally the phone number used for business purposes.
- The payer’s federal identification number. Businesses in the United States are issued an employer identification number (or EIN) by the IRS. An EIN is nine digits long with a hyphen in between the second and third numbers. Ex: 12-3456789
- The payer’s state and state taxpayer identification number. Some states do not require that this field is completed, or only if certain conditions are met. Due to the various state requirements, we won’t cover all situations here. If you are unsure check with your state tax department.
This information pertains to the person or business who received payments from the payer during the year. In order to get this information from the recipient, businesses are required to request that the recipient completes an IRS Form W9. This is a simple form that asks for information such as the recipient’s name and address, the type of business they are, and their taxpayer identification number.
The taxpayer identification number is either the recipient’s social security number if the recipient is an individual. The recipient’s employer identification number if the recipient is a business. And if the recipient is a resident alien, you will need their individual taxpayer identification number.
You will provide the following information about the recipient:
- The recipient’s name. This name should match what was provided to you on their W9.
- The recipient’s street address, city, state, country, and ZIP code. This should be the address provided on the W9 provided by the recipient.
- The recipient’s federal taxpayer identification number. In addition to the other information collected, this number will also be provided on the W9.
- An account number for the recipient. This may show an account or another unique number that the payer has assigned to the recipient to distinguish your account from other accounts.
Report payments in boxes 1, 2, 3, 5, 6, 7, 8, 10, 13, and/or 14.
- You will report rents in box 1. Rents include payments to a landlord, or for rental equipment.
- Box 2 is where you report royalties of $10 or more. Royalties include payments for intangible property like patents, copyrights, trade names, and trademarks.
- You should report other payments that don’t belong in any other box on the form in box 3. Report prizes and awards that are not for services in box 3.
- Report the recipient’s share of fishing boat proceeds from the sale of a catch in box 5.
- Medical and health care payments are reported in box 6. You would report things like flu shots if you paid a health care provider to provide them to your employees.
- You will report fees, commissions, prizes and awards for services that performed as a nonemployee in box 7.
- Report aggregate payments of at least $10 received by a broker for a customer in lieu of dividends or tax-exempt interest as a result of a loan of a customer’s securities in box 8.
- Insurance companies who pay crop insurance proceeds to farmers would report those amounts paid in box 10.
- Box 13 is for excess golden parachute payments, which while it sounds like it’s something from a video game is actually something that would require its own post to explain sufficiently.
- Enter amounts paid to an attorney in connection with legal services in box 14. The attorney in question does not need to be your attorney or provide you with services.
- If your state requires that you report income, you would do so in box 18.
There are certain circumstances where you may also need to withhold state or federal taxes from a payment. Report federal income tax withheld in box 4. Report state tax withheld in box 16.
Prepare to file 1099-MISC
Have a good understanding of the payments your business makes during the year. Keep track of each payment made to your vendors and other nonemployees so that you can easily aggregate the payments at the end of the year.
You should also request a W9 from each nonemployee that you do business with during the year before you make your first payment to them. It is important that you have their correct information on file in case you need to issue them a 1099-MISC. Generally, once you receive a W9 from a vendor you don’t need to request another copy unless any of their information changes.