Form 1099-MISC is a tax document for reporting various types of miscellaneous, non-wage compensation to the Internal Revenue Service (IRS) and the recipient of those payments.
The tax code seems designed to confuse. Every situation demands a form, usually with a sub-form or addendum trailing behind it. You might never see most of them, but Form 1099-MISC shows up often.
Individuals use Form 1099-MISC to report miscellaneous compensation over $600. Companies file form 1099-MISC to report various types of payments over $600 they made to individuals or corporations.
Types of payments on Form 1099-MISC include the following:
- Rent payments
- Royalties
- Prizes and awards
- Attorney payments
- Medical and health care payments
- Crop insurance proceeds
- Fishing boat proceeds
- Cash payments from fishing
- Payments of at least $10 in royalties or broker payments instead of dividends or tax-exempt interest
- Earnings through direct sales of consumer products for resale of over $5,000
For example, an individual or business may earn income from renting out property, such as office space, apartments, or storage units. The resulting rental income received would fall under Form 1099-MISC.
Form 1099-MISC vs. Form 1099-NEC
Forms 1099-MISC and 1099-NEC report non-employee compensation. However, while Form 1099-MISC is for miscellaneous compensation not subject to self-employment tax, Form 1099-NEC is for compensation subject to self-employment tax.
Form 1099-MISC records a taxpayer’s miscellaneous income over $600, including rent, attorney fees, prizes, and medical and healthcare payments. Box 7 on the 1099-MISC form now reports direct sales of $5,000 or more.
Before 2020, box 7 on Form 1099-MISC was used to report all non-employee compensation. However, the IRS instituted Form 1099-NEC for reporting non-employee compensation due to confusion regarding dual-filing deadlines on Form 1099-MISC.
Form 1099-NEC records payments over $600 made to non-employees, such as contractors, freelancers, consultants, and self-employed individuals.
Learn more: Form 1099-NEC vs. Form 1099-MISC
How to fill in Form 1099-MISC
A business must file Form 1099-MISC if they paid more than $600 to someone who isn’t on their payroll for miscellaneous expenses such as rent, prizes, awards, or attorney payments.
To begin, the payer of miscellaneous income must obtain a completed Form W-9 from the recipient. The W-9 verifies the recipient’s identity and collects their Taxpayer Identification Number (TIN).
Next, the payer fills out the following information on Form-MISC:
- Business’s name, address, phone number, and FEIN
- Recipient’s name, address, and TIN as reported from their Form W-9
- State identification number
- Applicable boxes for specific types of income reported, such as rent, royalties, or prizes and awards
- Withholding boxes for federal or state income tax
- Any foreign assets subject to withholding under the Foreign Account Tax Compliance Act
Form 1099-MISC has three copies: Copy A is for the IRS, Copy B is for the recipient, and Copy C is for the payer.
How to file Form 1099-MISC
Filing Form 1099-MISC can be done online or by mail. Use a third-party software or services compatible with the IRS FIRE (Filing Information Returns Electronically) system for electronic filing. The IRS will not accept scanned or handwritten forms. For mail-in filing of Form 1099-MISC, you must use scannable templates obtained from the IRS.
File Copy A of Form 1099-MISC to the IRS by February 28 if filing on paper and by March 31 if filing electronically. Send Copy B to the recipient by January 31. Copy 1 goes to the recipient’s state tax department if applicable.
Form 1099-MISC FAQs
Below are answers to common questions about Form 1099-MISC.
What is Form 1099-MISC used for?
Form 1099-MISC is a catch-all for income that doesn’t fit into other 1099 categories. Businesses use Form 1099-MISC to report miscellaneous payments over $600 they made to individuals or corporations. Individuals use Form 1099-MISC to report miscellaneous income aside from self-employment income.
Employees should not receive a Form 1099-MISC.
Do I need to issue a 1099-MISC to a contractor?
You do not need to issue a 1099-MISC to a contractor. If your business hires and pays a contractor, freelancer, or other self-employed individual more than $600 for services, you must issue and file a Form 1099-NEC.
Learn more: 1099 Employees: What to Know to Stay Compliant
How much tax do you pay on a 1099-MISC?
Typically, 1099 income above $400 receives a 15.3% fixed rate tax by the IRS, which includes 12.4% for Social Security and 2.9% for Medicare. However, getting a 1099-MISC doesn’t automatically translate to owing taxes, as certain deductions may offset the income or protect the asset.
How do you report 1099-MISC on a tax return?
Taxpayers must report miscellaneous payments as 1099-MISC income on their tax return income.
A taxpayer usually reports 1099-MISC income on Form 1040, Line 21, as “other income” on their tax return. This is for reporting income such as prizes, rents, awards, and royalties not subject to self-employment tax.
Individuals should keep records of their 1099-MISC forms for at least three years for future tax purposes.
Read also: Complete Guide to Payroll Tax
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This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided “as is,” and no representations are made that the content is error-free.
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