So you are wondering. Who do I issue a 1099 Misc. Income form to? Great question! Why don’t we look at it box by box and make the determinations of the businesses, types of businesses that you need to issue one to. However, let’s back up one step and see how do you get the necessary information to issue them a 1099 to begin with?
The form you need in order to get the information in order to prepare the 1099’s is called a W9. This form can be easily downloaded from the IRS website at https://www.irs.gov/pub/irs-pdf/fw9.pdf The instructions on the form explain pretty specifically how to fill out this form so please be sure to mail all four pages when requesting the information from the payee. If you do not get a W9 back from a vendor Steven Hamilton at HamiltonTax.net stated on biggerpockets.com “Write out the 1099 and put refused for his SSN.”
So who then gets a 1099?
- at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest;
- at least $600 in:
- services performed by someone who is not your employee;
- prizes and awards;
- other income payments;
- medical and health care payments;
- crop insurance proceeds;
- cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish;
- generally, the cash paid from a notional principal contract to an individual, partnership, or estate;
- payments to an attorney; or
- any fishing boat proceeds,
In addition, use this form to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.
So now we have determined who gets the form. Let me explain the most common used boxes. These boxes are 1, 2,7
Box 1. Rents
Enter amounts of $600 or more for all types of rents, such as any of the following.
Real estate rentals paid for office space. However, you do not have to report these payments on Form 1099-MISC if you paid them to a real estate agent. But the real estate agent must use Form 1099-MISC to report the rent paid over to the property owner. See Regulations section 1.6041-1(e)(5), Example 5.
Machine rentals (for example, renting a bulldozer to level your parking lot). If the machine rental is part of a contract that includes both the use of the machine and the operator, prorate the rental between the rent of the machine (report that in box 1) and the operator’s charge (report that as nonemployee compensation in box 7).
Pasture rentals (for example, farmers paying for the use of grazing land).
Public housing agencies must report in box 1 rental assistance payments made to owners of housing projects. See Rev. Rul. 88-53, 1988-1 C.B. 384.
If an arrangement between an owner of coin-operated amusements and an owner of a business establishment where the amusements are placed is a lease of the amusements or the amusement space, the owner of the amusements or the owner of the space, whoever makes the payments, must report the lease payments in box 1 of Form 1099-MISC if the payments total at least $600. However, if the arrangement is a joint venture, the joint venture must file a Form 1065, U.S. Return of Partnership Income, and provide each partner with the information necessary to report the partner’s share of thetaxable income. Coin-operated amusements include video games, pinball machines, jukeboxes, pool tables, slot machines, and other machines and gaming devices operated by coins or tokens inserted into the machines by individual users. For more information, see Rev. Rul. 92-49, 1992-1 C.B. 433.
Box 2. Royalties
Enter gross royalty payments (or similar amounts) of $10 or more. Report royalties from oil, gas, or other mineral properties before reduction for severance and other taxes that may have been withheld and paid. Do not include surface royalties. They should be reported in box 1. Do not report oil or gas payments for a working interest in box 2; report payments for working interests in box 7. Do not report timber royalties made under a pay-as-cut contract; report these timber royalties on Form 1099-S, Proceeds From Real Estate Transactions.
Use box 2 to report royalty payments from intangible property such as patents, copyrights, trade names, and trademarks. Report the gross royalties (before reduction for fees, commissions, or expenses) paid by a publisher directly to an author or literary agent, unless the agent is a corporation. The literary agent (whether or not a corporation) that receives the royalty payment on behalf of the author must report the gross amount of royalty payments to the author on Form 1099-MISC whether or not the publisher reported the payment to the agent on its Form 1099-MISC.
Box 7. Nonemployee Compensation
Enter nonemployee compensation of $600 or more. Include fees, commissions, prizes and awards for services performed as a nonemployee, other forms of compensation for services performed for your trade or business by an individual who is not your employee, and fish purchases for cash. Include oil and gas payments for a working interest, whether or not services are performed. Also include expenses incurred for the use of an entertainment facility that you treat as compensation to a nonemployee.
Federal executive agencies that make payments to vendors for services, including payments to corporations, must report the payments in this box. See Rev. Rul. 2003-66, which is on page 1115 of Internal Revenue Bulletin 2003-26 at
What is nonemployee compensation?
If the following four conditions are met, you must generally report a payment as nonemployee compensation.
- 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 (including government agencies and nonprofit organizations).
- You made the payment to an individual, partnership, estate, or, in some cases, a corporation.
- You made payments to the payee of at least $600 during the year.
Do not report in box 7:
Expense reimbursements paid to volunteers of non-profit organizations;
Deceased employee wages paid in the year after death (report in box 3)(See Deceased employee’s wages, earlier);Payments more appropriately described as rent (report in box 1), royalties (report in box 2), other income not subject to self-employment tax (report in box 3), interest (use Form 1099-INT);The cost of current life insurance protection (report on Form W-2 or Form 1099-R); An employee’s wages, travel or auto allowance, or bonuses and prizes (report on Form W-2); and the cost of group-term life insurance paid on behalf of a former employee (report on Form W-2).
Box 9. Payer Made Direct Sales of $5,000 or More
Enter an “X” in the checkbox for sales by you of $5,000 or more of consumer products to a person on a buy-sell, deposit-commission, or other commission basis for resale (by the buyer or any other person) anywhere other than in a permanent retail establishment. Do not enter a dollar amount in this box. If you are reporting an amount in box 7, you may also check box 9 on the same Form 1099-MISC.The report you must give to the recipient for these direct sales need not be made on the official form. It may be in the form of a letter showing this information along with commissions, prizes, awards, etc.
Box 14. Gross Proceeds Paid to an Attorney
Enter gross proceeds of $600 or more paid to an attorney in connection with legal services (regardless of whether the services are performed for the payer). See Payments to attorneys, earlier.
Boxes 16–18. State Information
These boxes may be used by payers who participate in the Combined Federal/State Filing Program and/or who are required to file paper copies of this form with a state tax department. See Pub. 1220 for more information regarding the Combined Federal/State Filing Program. They are provided for your convenience only and need not be completed for the IRS. Use the state information boxes to report payments for up to two states. Keep the information for each state separated by the dash line. If you withheld state income tax on this payment, you may enter it in box 16. In box 17, enter the abbreviated name of the state and the payer’s state identification number. The state number is the payer’s identification number assigned by the individual state. In box 18, you may enter the amount of the state payment.
If a state tax department requires that you send them a paper copy of this form, use Copy 1 to provide information to the state tax department. Give Copy 2 to the recipient for use in filing the recipient’s state income tax return.
*All regulations taken directly from the IRS website located at https://www.irs.gov/pub/irs-pdf/i1099msc.pdf
Article written by Joe Lavoie, owner of Balanced Books by Joe, bookkeeping company based in Meriden CT. Serving the bookkeeping needs of small businesses in Connecticut.