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What is a 1099 and Who Gets It?

Posted by Traci A. Malik Posted on Aug 03 2017

A 1099-Misc is an IRS tax reporting information form. There are various reasons to issue a 1099-Misc, but the most common use is for contract labor. It is used to report payments made in the course of a trade or business to a person who is not an employee or to an incorporated business. If you pay them $600 or more in a calendar year, a 1099 is required to be filed. You need to either purchase the forms prior to the end of the year for self-preparation, order them from the IRS for free, or have our firm prepare them for you. Below is a listing of some of the uses of the 1099-Misc form. For additional information please refer to IRS.gov and the instructions to the form.

 

  • Rents – Box 1: Report payments of rent to unincorporated recipients except to real estate agents.
  • Royalties – Box 2: Payment of royalties in the amount over $10 per year.
  • Other Income – Box 3: Prizes and awards that are not for services performed and any other income not reported in another box on form 1099.
  • Federal Income Tax Withheld – Box 4: Enter any backup withholding or regular withholding.
  • Fishing Boat Proceeds – Box 5: Proceeds from the sale of a catch or the fair market value of a distribution in kind to each crew member of fishing boats with normally fewer than 10 crew members.
  • Medical and Health Care Payments – Box 6: Payments made in the course of your trade or business to each physician or other supplier or provider of medical or health care services.
  • Nonemployee Compensation – Box 7: Include fees, commissions, prizes and awards for services performed as a nonemployee including professional fees.
  • Gross Proceeds Paid to an Attorney – Box 14: Enter gross proceeds from a settlement of $600 or more paid to an attorney in connection with legal services regardless of whether the services are performed for the payer.

 

What is nonemployee compensation?

According to the IRS:

  • You made the payment to someone who is not your employee.
  • You made the payment for services in the course of your trade or business.
  • You made the payment to an individual, partnership, estate, or in some cases a corporation.
  • You made the payments to the payee of at least $600 during the year.

 

Do you ever issue a 1099-Misc to a corporation?

Yes, the following payments made to corporations generally must be reported on for 1099-Misc.

  • Medical and health care payments in box 6.
  • Fish purchases for cash in box 7.
  • Attorneys' fees in box 7.
  • Gross proceeds paid to an attorney in box 14.
  • Substitute payments in lieu of dividends or tax-exempt interest in box 8.
  • Payments by a federal executive agency for services in box 7.

 

How do I know if I should issue a 1099-Misc?

You need to request the recipient fill out Form W-9 before payment is made to them and return it to you. This form has them indicate the type of tax classification they are whether it is an individual, S corporation, partnership or Limited Liability Company, LLC. A LLC can be taxed several ways so it is important to pay attention to how the recipient filled out the form. If the LLC is anything but a C or S corporation, then they are required to receive a 1099-Misc. Keep the W-9 on file and provide a copy to us.

 

When is the 1099-Misc required to be filed?

If you are reporting payments in box 7, then you must provide the form to the recipient and file with the IRS by January 31st of the following year. Example: for 2017 the deadline is January 31, 2018. For 1099-Misc forms that are reporting amounts in boxes other than box 7, the recipient copy must be provided by January 31st and the IRS copy must be filed by February 28th.

 

What are the penalties for late or non filing?

 

Small Businesses with Gross Receipts $5 Million or Less

Government Entities and Large Businesses with Gross Receipts of More Than $5 Million

Time returns filed/furnished

Returns due 01-01-18 thru 12-31-2018

Returns due 01-01-18 thru 12-31-2018

Not more than 30 days late

$50 per return/

$50 per return/

(by March 30 if the due date is February 28)

$186,000* maximum

$532,000* maximum

31 days late – August 1

$100 per return/

$100 per return/

$532,000* maximum

$1,596,500* maximum

After August 1 or Not At All

$260 per return/

$260 per return/

$1,064,000* maximum

$3,193,000* maximum

Intentional Disregard

$530* per return/

$530* per return/

No limitation

No limitation