There are a lot of different versions of Form 1099:
- 1099-A: acquisition or Abandonment of Secured Property
- 1099-B: Proceeds from Broker and Barter Exchange Transactions
- 1099-C: Cancellation of Debt
- 1099-CAP: Changes in Corporate Control and Capital Structure
- 1099-DIV: Dividends and Distributions
- 1099-G: Government Payments
- 1099-H: Health Insurance Advance Payments
- 1099-INT: Interest Income
- 1099-LTC: Long Term Care Benefits
- 1099-MISC: Miscellaneous Income
- 1099-OID: Original Issue Discount
- 1099-PATR: Taxable Distributions Received From Cooperatives
- 1099-Q: Payment from Qualified Education Programs
- 1099-R: Distributions from Pensions, Annuities, Retirement Plans, IRAs, or Insurance Contracts
- 1099-S: Proceeds from Real Estate Transactions
- 1099-SA: Distributions From an HSA, Archer MSA, or Medicare Advantage MSA
- SSA-1099: Social Security Benefit Statement
- RRB-1099: Payments by the Railroad Retirement Board
- RRB-1099R: Pension and Annuity Income by the Railroad Retirement Board
A business owner is most like going to use Form 1099-MISC and perhaps Form 1099-INT. For the most part, the rest of them won’t be needed. Talk to your CPA if you have any question on the specifics.
In general, if you make the payment to an individual or a partnership (or LLC taxed as a partnership), you have to report applicable payments on the Form 1099-MISC. If you make payments to a corporation, you don’t have to report the payments. The one exception is if you make payments to an attorney. You then have to report no matter what type of entity the lawyer is in.
Let’s go through the Form 1099-MISC box by box.
Box #1: Rents. Use this to report rents paid of $600 or more. This is all types of rent – office rent, equipment rental, lot rental and the like.
Box #2: Royalties. If your company pays royalty in excess of $10, it needs to be reported.
Box #3: Other. It’s funny that the ‘other’ category is one of the first ones, but this really is better described as gifts, prizes and awards. If you pay them to an employee, don’t report that on the Form 1099-MISC, put it on their W-2 instead.
Box #4: Federal Income Tax Withheld. If you’ve withheld federal income tax from the payment, this is where it get reported.
Box #5: Fishing Boat Proceeds. I’m not going to go into the details here. If this is applicable, talk to your tax preparer.
Box #6: Medical & Health Care Proceeds. If you make a payment to a health care provider in excess of $600 through your business, you need to report it here. If the medical & health care payments go to a corporation, those still need to be reported here. Most of us won’t report here, unless we have a C Corporation with a MERP (medical expense reimbursement plan). In that case, the C Corp will need to report the payments on Form 1099 Box 6.
Box #7: Miscellaneous. This is the big one. This is where you report payments made to independent contractors. The amounts showing up in Box #7 will be for income that is subject to self-employment tax. If you’re paying income that isn’t, and it doesn’t fit in any other box descriptions, use Box #3. You are only required to report income that is $600 or more and remember, unless it’s an attorney, you don’t need to report for corporations.
Box #8: Substitute Payments in Lieu of Dividends. That’s a pretty narrow niche. Chances are you won’t be using this box.
Box #9: Payer Made Direct Sales of $5,000 or More. This is a check that is done to show that there was a direct sale or resale relationship.
The rest of them are pretty self-explanatory:
Box #10: Crop Insurance, Box #13: Excess Golden Parachute Payments, Box #14 Gross Proceeds Paid to an Attorney, Box #15a: Section 409A Deferrals.
The #1 question that I get asked this time of year is, “What if I don’t have their Social Security number or EIN?”
That’s problematic because the answer is that you are required to withhold 30% back-up withholding if they don’t provide the information. If you don’t file the Form 1099-MISC, you’re subject to $50/occurrence as a penalty. If the person is still working for you, withhold payments until you get the number. If they’re gone, you’ve got a problem.
The best answer is to get a Form W-9 completed before you write any checks to outside contractors. Otherwise, you could be looking at penalties.
The Form 1099 must be mailed out to your payees by the end of January. There is an extension to February 15, 2010 for reporting payments made to attorneys. Remember you need to also file a copy with the IRS either through paper (and mail) or electronically. There are extensions available if you needs those too.