How to Know When to Issue a 1099-MISC

How to Know When to Issue a 1099-MISC

•    Calculate if you paid $600 or more during the tax year in the course of your trade or business to an individual, sole-proprietor, LLC or partnership. Professional fees to an attorney, doctor or other professional are included. Payments to corporations are included only if they are for medical, health care or legal fees.
•    Calculate if you paid $10 or more in royalties.
•    Issue 1099-MISCs if you have or manage a trade or business and have paid $600 or more to an individual, LLC or partnership (or certain corporations) or have paid $10 or more in royalties.
•    Issue a separate 1099-MISC to each individual , LLC or partnership (or specific corporations).

Payments Requiring 1099-MISC

•    Determine that you paid $600 or more in compensation for services rendered by a nonemployee to your trade or business. Include the gross amount of payments in box 7, including anything you paid the contractor for supplies and materials.
•    Determine that you paid $600 or more in rent for office space, machines, equipment or land in the course of your trade or business. Write the amount in box 1. You are not required to include amounts paid to corporations for rent.
•    Verify that your trade or business gave any prizes or awards to an individual who is not your employee. Include only amounts of $600 or more. Put amounts in box 3. But don’t report it if the prize was transferred directly to charity.
•    Verify that your trade or business paid $600 or more in medical or health care payments to an individual, partnership or corporation. Put the amount in box 6.
•    Verify that your trade or business paid $600 or more to an attorney or law corporation for any legal services. Write the amount in box 7. If you cannot determine the amount paid that applies to legal services, write the gross amount paid, even if less than $600, in box 13 and put the letter A after the amount.
•    Determine if you paid $600 or more in taxable fringe benefits to nonemployees in the course of your trade or business. Write the amount in box 7.
•    Determine if your trade or business paid $600 or more in punitive damages. Write the amount in box 3.
•    Determine if your trade or business paid $600 or more in director’s fees. Write the amount in box 7.
•    Determine if your trade or business paid $600 or more to a deceased employee’s estate or beneficiary. There are some tricky rules on this one, so be careful and get some help from us if needed. Write the amount in box 3.

The general rule is that you do not have to send 1099-MISCs to a corporation. The exceptions to the rule are for medical, health care, legal and attorney, and fishing related payments.

The 1099-MISC should be used for reporting payments to independent workers — not payments to employees. For employees, you use form W-2 instead to report employment income.

Independent workers are typically self-employed individuals or small service firms that you hire as independent contractors. Examples of independent workers might include a graphics designer, web developer, cleaning service, freelance writer, landscaper or gardener service, business consultant, IT or HR company, marketing consultant or any other self-employed provider. The key is that the independent worker is self-employed — and not your employee.

You are required to complete a 1099-MISC reporting form for an independent worker if you paid that independent worker $600 or more. You add up all payments made to a payee during the year, and if the amount is $600 or more for the year, you must issue a 1099 for that payee.

The following penalties will be in effect for the year 2014:
•    $30 penalty for filing a 1099 not more than 30 days late;
•    $60 penalty for filing a 1099 more than 30 days late and before August 1;
•    $100 penalty for filing a 1099 on or after August 1;
•    $250 penalty for intentional failure to file.

The following penalties are in effect for the year 2013:
•    $30 penalty for each filing of a 1099 not more than 30 days late;
•    $60 penalty for each filing of a 1099 more than 30 days late and before August 1;
•    $100 penalty for each filing of a 1099 on or after August 1;
•    $250 penalty for intentional failure to file

Deadlines for 1099-MISC Forms

•    Provide the recipient with his or her copy of the Form 1099-MISC by January 31 reporting income for the previous calendar year.
•    Mail the Form 1099-MISC to the IRS no later than February 28.
•    Remember we are here for you if you have questions or would like us to prepare the necessary forms.