Who Needs to Complete a 1099?

by Van Thompson
Nonemployees have to reflect 1099 earnings on their tax returns.

A 1099 is a form that businesses use to report payments to corporations or individuals who are not employees. You don't need to complete a 1099 if you make payments that are not part of your business or nonprofit organization. For example, you don't report rent payments to your landlord on a 1099. However, most payments made to nonemployees as part of your business must be reported on these forms, which then are sent to 1099 recipients and the Internal Revenue Service at the end of the tax year. In most cases, payments only have to be reported when they exceed $600.

Independent Contractors

If you use independent contractors in your business, you'll need to report any earnings in excess of $600 on a tax form. For example, if you contract with a web designer to make your corporate website or use the services of an attorney, you'll have to report these earnings. Payments to attorneys and to other independent contractors are reportable in Box 7 of the form.

Payments to Estates

If an employee dies and you make payments to the employee's estate, these go on a 1099 form. If these payments are made after the year the employee dies, you don't have to withhold taxes or report them on a W-2. Instead, they go in Box 7 of a 1099.

Escrow and Trusts

When an escrow agent holds funds on behalf of an owner for a construction project, the escrow agent has to file a 1099. The agent has to report payments in excess of $600 made to either the owner or the contractor, even if the escrow agent isn't a bank. When a contractor borrows funds rather than receiving payments, these do not go on a 1099. Trustees for widely held fixed investment trusts -- a specific kind of trust in which a third party, rather than the owner, holds the trust -- must also report payments and income associated with the trust on a 1099.

Gambling and Prizes

States that have lottery sales agents have to report payments to these agents in Box 7 of the 1099. Similarly, gambling payments made to Indian casinos or tribes have to be reported in Box 3 on a 1099. You'll also have to report any federal taxes you've withheld from these payments in Box 4. Prizes from game shows and sweepstakes also need to be reported.

Sales Taxes

Sometimes buyers pay sales and other local taxes directly to a service provider. When these payments exceed $600 paid to a single service provider, they need to be reported on a 1099. If, however, the sales taxes are imposed upon you rather than on the service provider, don't report them.

Royalties

Royalty payments in excess of $10 for oil, gas and mineral properties have to be reported on a 1099. You'll also need to report any royalties paid for intellectual property such as copyrights and patents. For example, a recording studio that pays royalties to an artist has to report these payments.

About the Author

Van Thompson is an attorney and writer. A former martial arts instructor, he holds bachelor's degrees in music and computer science from Westchester University, and a juris doctor from Georgia State University. He is the recipient of numerous writing awards, including a 2009 CALI Legal Writing Award.

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