Many business owners operate their business day to day without knowing whether or not they are in compliance with IRS rules and regulations. If you ask them “what is a 1099-MISC”, they may have received one in the past but likely could not define what it is used for. Without knowing what the form is used for, it’s difficult to say whether or not your business is filing everything it needs to.
What is a 1099-MISC?
The IRS form 1099-MISC is used so that the IRS can track miscellaneous income. A business will report payments made to independent contractors throughout the year on the form 1099-MISC.
A 1099-MISC is generally required whenever you pay someone who is not your employee $600 or more during the year.
What payments require you to file a 1099-MISC?
Other types of payments that require a 1099-MISC include (but are not limited to):
- Cash payments to professional fishermen
- Crop insurance proceeds
- Medical and health care payments
- Prizes and awards
- Proceeds paid to attorneys
- Proceeds paid to a partnership or estate
- Services performed by independent contractors (this includes payments for time, labor, services, parts, or other materials)
- Royalties or broker payments over $10
- Other payments that are not covered by any other information form
What information is reported on a 1099-MISC?
The 1099-MISC includes personal information about the business who made payments as well as about the individual who received the payments during the year. The information included about both parties includes their name (or business name), address, telephone number (for the payer) as well as their federal tax identification numbers.
The form also includes boxes for different types of payments. In those boxes, the payer should report the total amount of the payments made to the vendor during the year.
Examples of payments reported on 1099-MISC
If your business rents office space you may need to issue a 1099-MISC to your landlord. When you do, you would report the total rent payments made during the year in the Rents box on the 1099-MISC.
When you license another person’s intellectual property (IP) to sell, you generally need to make payments to that person for use of their IP. Examples of IP include things like software, books, music, photographs, artwork, etc.
Those payments are reported on the Royalties box on the 1099-MISC. It is important to note that total royalty payments over $10 for the year (not $600 like most other payments) need to be reported.
Payments made to freelancers, contractors, or other non-employees in the course of business during the year that total $600 or more need to be reported as nonemployee compensation.
You would issue a 1099-MISC to the photographer who did the headshots of your key employees for your website. On the other hand, you do not issue a 1099-MISC to the photographer who shoots your wedding. This is not a service performed for you in the course of doing business.
You would issue a 1099-MISC to the mechanic that did repairs on your company’s delivery van, but you wouldn’t issue one to the same mechanic that did repairs on your personal car.
Affiliates promoting your products or services are paid for each referral that becomes a customer. Those affiliates will get issued a 1099-MISC for payouts that are over $600 for the year.