Introduction
Payments of income on Form 1099 are payments from the company to an entity or individual who is not an employee. These payments are reported on Form 1099-MISC or Form 1099-NEC, depending on the type of payments. The form must then be submitted to both the Internal Revenue Service (IRS) and the party that was paid.
What are Income Payments on Form 1099?
Income payments on Form 1099 are payments made by a company to a person who is not an employee of the company, such as other businesses, individuals, freelancers, independent contractors, and suppliers.
These payments are reported to the IRS using Form 1099-MISC for miscellaneous payments, or Form 1099-NEC for non-employee compensation. These are information returns similar to Form W-2.
Who Reports Income Payments on Form 1099?
Form 1099 is required whenever you pay $600 or more to a person who is not your employee during the year in the course of doing business.
For example, a single payment in June of $300 would not require a Form 1099, but it would reach the threshold if you made another $300 payment later in the year. You must file a Form 1099 because the total payments amount to $600.
Since 1982, all miscellaneous payments have had to be reported on Form 1099-MISC. However, starting from the 2020 tax year, the IRS requires reporting of non-employee compensation — in other words, payments to freelancers or contractors — on Form 1099-NEC. This change is due to the Protecting Americans from Tax Hikes (PATH) Act, which accelerated the deadline for reporting non-employee compensation information to January 31.
Form 1099-MISC should be used to report:
- Rent
- Awards and prizes
- Other payments
- Fishing boat proceeds
- Medical and healthcare payments
- Crop insurance proceeds
- Attorney fees
- Section 409A deferrals
- Non-qualified deferred compensation
You must also file Form 1099-MISC if you sell $5,000 or more in consumer products to any person for resale purposes, if the resale does not occur in a permanent retail establishment.
Note: These rules apply only if you are engaged in a business. For example, you do not have to issue a Form 1099-MISC to your divorce attorney for services rendered in finalizing your marriage because that is considered a personal payment.
Generally, you do not have to issue 1099-MISC forms for payments made to corporations for services rendered. You are also not required to file a Form 1099-MISC for payments like rent or life insurance payments. Mostly, 1099-MISC forms are only required for individuals, partnerships, and limited liability companies treated as partnerships, and sole proprietorships.
If you have payments to freelancers, independent contractors, or attorneys, report them in box 1 of Form 1099-NEC.
Requirements for Filing Form 1099
First, you will need W-9 forms from all vendors, contractors, and other payment recipients. Ask each of them to complete one for you when you start doing business with them.
The W-9 form will provide you with the legal name, address, and taxpayer identification number — all the information you will need when preparing their 1099 forms.
Keep track of your payments in your accounting system so you can determine if they fall under any of the categories that require reporting and how much those payments are for the year.
Note: Do not issue a Form 1099-MISC if you made any payments that do not fit these rules well or seem to require any other document to report the information. Check with a tax professional first.
For the 2020 tax year, the deadline for issuing 1099-NEC forms is February 1, 2021. You have until March 1 if you are filing paper 1099-MISC forms, or until March 31, 2021, if you are filing electronically.
Note:
Penalties may increase for payment delays after August 1, so contact a tax professional for assistance as soon as possible if you have an issue that may prevent you from filing your return by that date.
Businesses can request a 30-day extension to file 1099 forms with the Internal Revenue Service using Form 8809, but note that the extension does not give you extra time to file the 1099 form for the recipient, only for the government.
Make sure to submit this form so you get the most time and flexibility if you anticipate a problem in the future.
Takeaway
– Income payments are reported on 1099 forms.
– For independent contractors and other non-employees, information is reported on Form 1099-NEC.
– For other miscellaneous payments (such as awards or other payments), use Form 1099-MISC.
– Each form has different deadlines, so pay close attention to the deadline for filing the form you choose.
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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we fact-check and maintain the accuracy, reliability, and quality of our content.
IRS.gov. “Instructions for Forms 1099-MISC and 1099-NEC (2020).” Accessed Jan. 2, 2021.
IRS.gov. “About Form 1099-MISC, Miscellaneous Income.” Accessed Jan. 2, 2021.
IRS.gov. “Instructions for Forms 1099-MISC and 1099-NEC.” Accessed Jan. 2, 2021.
IRS.gov. “Increase in Information Return Penalties.” Accessed Jan. 2, 2021.
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Source: https://www.thebalancemoney.com/reporting-income-payments-using-form-1099-misc-3192962
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