The Internal Revenue Service has a series of 1099 forms that it uses to record payments from one entity or person to another. For example, Form 1099-DIV Is a common form used to report payment of dividends. Form 1099-INT is another form that records payments in excess of $10 for interest. For 2020 returns, IRS Form 1099-NEC will be used for nonemployee compensation.
Form 1099 MISC is not specific to one type of payment but reports several different kinds of payments when they exceed $600. These are examples of income reported on the tax form 1099-MISC and who would receive a copy that a taxpayer should include with their income tax return.
If you pay rent directly to the property owner for your office space, then you would issue an IRS Form 1099-MISC to record the amount in Box 1 and send a copy to the owner. You would not issue a 1099 for rent paid to property managers or real estate brokers. In this case, the property managers and brokers would issue 1099s to the property owners.
Owners of machines, like earthmoving equipment, would receive 1099s when renting their equipment for use in a trade or business. Renting a bulldozer for grading property to build houses would be an example. But renting a backhoe to excavate for a swimming pool in your backyard would not be reported; that’s a personal expense.
Farmers who lease out their land for grazing would get a 1099-MISC from the lessor.
Read More: What Happens if I Get a 1099 After I File My Taxes?
Prizes and awards for service provided by nonemployees as independent contractors are not reported on Form 1099-MISC but are reported in Box 1 of Form 1099-NEC, the 1099 form for nonemployee compensation over $600.
If you own oil and gas properties, any royalty payments that you receive would be reported on a 1099-MISC with amounts reported in Box 2. A typical example is when a landowner allows an oil company to drill wells on their property and the landowner receives a portion of proceeds as a percentage royalty from the sale of the crude oil produced.
Owners of intangible properties – such as trademarks, copyrights and patents – would also report royalty income from the sales or use of their properties.
Prizes and Awards
Winners of prizes and merchandise with a fair market value of over $600 from game shows must report this income. The entity awarding the prizes will report the FMV in Box 3, Other Income, and give a copy to the winners. One downside is when the recipient does not receive cash but instead, merchandise, a car for instance, and the recipient may have to sell the award to come up with the cash to pay the taxes due.
Prizes and awards for service provided by nonemployees as independent contractors are not reported on Form 1099-MISC but are reported in Box 1 of Form 1099-NEC, the 1099 form for nonemployee compensation over $600. Prizes and awards to employees are reported on Form W-2.
Fishing Boat Proceeds
Fishing activity has its own category. Fishing boats with fewer than 10 crew members must report the fair market value of the proceeds of a catch for each crew member.
Medical and Health Care Payments
Payments made in the course of normal business to providers and physicians of medical or health services are reported. This category is one of the exceptions where payments to corporations are also reported on a 1099-MISC.
Substitute Payments in Lieu of Dividends or Interest
If you have a margin account with your stock broker, you may get a 1099 that reports any monies you receive as substitute payments in lieu of dividends or interest. This situation arises when the brokerage firm has loaned out your stock to a short-seller and a dividend has been paid before the short-seller closes the position. This could create an unfavorable tax situation.
Crop Insurance Proceeds
Farmers occasionally receive payments from insurance companies and federal disaster programs for destruction or damage to crops as a result of natural disasters, such as droughts or floods. Normally, for cash basis farmers, this income would be reported on the 1099-MISC in the tax year when the payments are received. However, IRC 451(f) allows farmers to defer reporting this income until the following tax year under certain conditions.
Gross Proceeds Paid to Attorneys
Suppose you win a lawsuit initiated in the course of your business, and the defendant’s insurance company pays the claim to your attorney. The insurance company would report the amount of this claim in Box 10 of Form 1099-MISC and send a copy to your attorney.
A slight variation of this same process occurs when a person pays, in connection with their business, an amount in excess of $600 to a claimant’s attorney. The payee would be required to send the claimant a Form 1099-MISC with the payment reported in Box 3. In addition, the payee would also send a Form 1099-MISC to the claimant’s attorney and report the amount paid as gross proceeds in Box 10.
Excess Golden Parachute Payments
When a company experiences a change in control, some executives may receive compensation known as golden parachutes. When the amount of this compensation exceeds a certain threshold, the excess is reported in Box 13 of Form 1099-MISC, and a copy is given to the discharged executive.
What About S-Corps, C-Corps and LLCs?
In most cases, you're not required to issue 1099-MISC forms to C Corps and S Corps. However, there are a few exceptions:
- Payments to attorneys
- Medical and healthcare payments
- Substitute payments in lieu of dividends or tax-exempt interest
LLCs that are taxed as sole proprietorships would receive 1099s, but would not receive a 1099 if taxed as a C- or S-Corp. You will know which is correct by looking at the Form W-9 submitted by the individual.
Distribution of 1099-MISC Forms
Form 1099-MISC comes with five copies that are distributed as follows:
- Copy A goes to the IRS.
- Copy 1 goes to the recipient’s state tax department.
- Copy B is kept by the recipient.
- Copy 2 goes along with the taxpayer’s state tax return.
- Copy C is kept by the taxpayer.
- Internal Revenue Service: Instructions for Forms 100-MISC and 1099-NEC
- Nerdwallet: What Is an IRS Form 1099?
- Cornell Law School: Golden Parachutes
- Entrepreneur: Time to Send Out 1099s: What to Know
- thebalance: Who Must Receive Form 1099-MISC?
- Iowa State University: Special Rule for Taxing Crop Insurance and Disaster Payments
- Internal Revenue Service: Gross Proceeds Paid to Attorneys
- Internal Revenue Service. "About Form 1099-MISC." Accessed Jan. 15, 2020.
- Internal Revenue Service. "Am I Required to File a Form 1099 or Other Information Return?" Accessed Jan. 15, 2020.
- Internal Revenue Service. "2019 Instructions for Form 1099-MISC," Page 1. Accessed Jan. 15, 2020.
- Internal revenue Service. "2019 Form 1099-MISC," Pages 1–2. Accessed Jan. 15, 2020.
- Internal revenue Service. "2019 Form 1099-MISC," Pages 1–7. Accessed Jan. 15, 2020.
- Internal Revenue Service. "Form 1099-MISC." Accessed Jan. 29, 2020.
- Internal Revenue Service. "Instructions for Forms 1099-MISC and 1099-NEC (2020)." Accessed Jan. 15, 2020.
- Internal Revenue Service. "2019 General Instructions for Certain Information Returns," Pages 25–27. Accessed Jan. 15, 2020.
James Woodruff has been a management consultant to more than 1,000 small businesses. As a senior management consultant and owner, he used his technical expertise to conduct an analysis of a company's operational, financial and business management issues. James has been writing business and finance related topics for work.chron, bizfluent.com, smallbusiness.chron.com and e-commerce websites since 2007. He graduated from Georgia Tech with a Bachelor of Mechanical Engineering and received an MBA from Columbia University.