How to Enter Oil Royalties on a 1099 Tax Form

How to Enter Oil Royalties on a 1099 Tax Form
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Form 1099-MISC is the federal tax form that should be used to report taxable income other than wages, which are reported on Form W-2. Oil royalties are generally reported on Form 1099-MISC. The original form is sent by the payer to the Internal Revenue Service, one copy to the state tax department and a second copy is sent to the payee for tax-reporting purposes. Three types of oil royalties can be reported on Form 1099-MISC: standard gross royalties, working interest royalties and surface royalties.

Enter gross oil royalties before reduction for fees, commissions and expenses in box 2 on Form 1099-MISC. Do not enter working interest royalties or surface royalties in box 2.

Report surface royalties paid in box 1. Surface royalties are payments to landowners who have contracted out the right to drill for oil beneath their land and do not have a stake in the drilling company.

Record royalty payments to participants in a working interest in box 7. When a landowner owns a percentage of interest in an oil company drilling on his land, he is said to have a working interest. The owner is paid a royalty on production revenues based on the percentage of working interest owned.

Tips

  • If royalties paid during the year total less than $10, you do not need to report these payments on Form 1099-MISC.