Monthly Archives: April 2013

What Do I Do With This 1099 MISC and Do I Need to Report It?

Many people who may have performed work or services for others may be a little surprised to find a Form 1099-MISC in their mailbox at the beginning of the year. The Form 1099-MISC is used by businesses of all sizes to report money that they paid out to non-employees. Non-employees are usually independent contractors. If you get a Form 1099-MISC, hold on to it because you will need it in order to properly file your federal (and most likely) state taxes.

You should get a Form 1099-MISC from any person or business that paid you $600 or more during the tax year as long as you were not an employee of that company or person. The earnings that they report on the Form 1099-MISC will also be reported to the IRS, so you have to add this amount to your gross income when doing your taxes. Gross income is any income regardless of the source and includes commissions and fees that you have charged someone.

The first thing to do is to check to make sure that information is correct, especially your Social Security Number or Tax Identification Number. People make mistakes, so double check this. Next, make sure that the amount reported in Box 7 is accurate. This is the amount paid to you for work or services you did for the payer. Check Boxes 4 and 11 to see if any taxes were withheld. Withholding is not typical for 1099-MISC as this form is to be used to “non-employees”.

If you worked on a fishing boat and received shares, check the amount in Box 5.

If you provided medical or health care services, check Box 6 to find out how much was paid for your services.

Box 9 is checked if $5000 or more in goods intended for resale were received by you with the intent to resell those goods in something other than a retail establishment. This usually applies to those who sell goods on a buy-sell, commission, or deposit-commission basis.

Box 10 will tell you how much crop insurance you were paid, if any.

Box 13 will tell you how much in legal services you were paid.

Form 1099-MISC is also used to report rents, royalties and certain other income.

Box 1 should contain the correct amount that was paid to you for rent of land, office space, equipment, or machinery.

Box 2 should contain the amount that you received from royalties that were $10 or more.

Box 3 is for “Other Income.” This can be anything from cash prizes to legal awards for punitive damages.

Any payments listed in Box 1 probably will require that you use Schedule E in order to report your rental income.

For those payments that are in Boxes 5, 6, 7 and 13, consider them self-employment income. Generally, you will need to fill out Schedule C or C-EZ as well as Schedule SE.

The IRS will get a copy of your 1099-MISC and will check it against your tax return to make sure that you are reporting all of your gross incomes. Do not try to stiff them because you could face some hefty fines.

What are the Current IRS 1099 Requirements for Small Businesses?

The requirements for Form 1099-MISC can seem confusing at times. The good news is any tax professional can clear up questions, and there is a wealth of information online as well concerning who must send out the forms and who are to get them. Here is some general information on the Form 1099-MISC requirements.

All businesses are required by law to issue Form 1099-MISC to those who have performed work or services for them who were not classified as employees. This can include professionals, independent contractors, and other types of individuals and business entities. The Form 1099-MISC is used by the IRS so it can matches the reported income to the person getting it to see that that person is properly reported that money as income. Businesses that do not send out Form 1099-MISC when they are required to do so can face stiff penalties for noncompliance.

Generally speaking, the Form 1099-MISC is to sent out no later than January 31 to the payee, and copies must also be sent to the IRS prior to the last day of February. Some states require that they, too, get copies before certain deadlines. Also, those sending out Form 1099-MISC must file Form 1096. This is a summary of 1099-MISC forms that were sent out.

A Form 1099-MISC must be given to anyone who falls into one of the following:

When non-employees (such as independent contractors) are paid $600 or more.

When there are payments that exceed $10 for royalties, substitute dividends, or and tax-exempt interest.

When payments are made to attorneys or the crew members of fishing boats regardless of the amount paid.

Any payments to persons who are subject to the backup withholding rules regardless of the amount paid.

If there is a sale of $5,000 or more and the sale was for consumer products that are for resale anywhere other than what is considered a permanent retail establishment.

Many times it may be confusing to understand the difference between an employee and an independent contractor. Generally, the IRS says a person is an independent contractor if that person is only subject to the control or direction of another for the sole purposes of detailing or outlining the work that is to be accomplished, BUT is not subject as to methods or to the means by which that intended work is accomplished.

Here is a simple example: A company hires a landscaper to mow the grass. The company can tell the person where the grass is and how often they want it mown, and agree on a price. The landscaper provides his or her own tools, transportation, sets his or her own hours, and is not required to be “on the clock”…this would be an independent contractor.

On the other hand: a company hires a person to do maintenance and this includes mowing the grass. The person is required to clock in and out, is required to be at work at a certain time, is subject to the rules of the company, and is provided the tools needed to get the job done. This person is an employee.