There are many Form 1099’s including the 1099-C for contributions, the 1099-DIV for dividends, the 1099-INT for interest, and the 1099-MISC for miscellaneous payments. This discussion will be limited to the form 1099-MISC.
You must report on form 1099-MISC payments totaling $600 or more to each payee.
The 1099-MISC is to be used for reporting trade or business transactions only. A 1099 need not be filed for 1) payments to a corporation, 2) payments for merchandise, utilities, freight, storage, or similar items, 3) payments of rent to a real estate agent, 4) wages paid to employees, 5) business travel costs paid to employees, 6) payments to a tax exempt organization or a governmental entity, and 7) payments made via a payment card similar to a Visa or American Express card.
Payments to attorneys are subject to different rules. You must report payments to attorneys if they exceed $600 in box 7 of form 1099-MISC. Payments to attorneys for legal services, such as in a settlement agreement, are reported in box 14 unless they have been reported in box 7. These rules do not apply for wages paid to attorneys. The exemption provided for payments made to corporations does not apply to payments for legal services.
Do not report payments to employees to reimburse them for travel or business expenses. Payments to employees under a non-accountable plan are to be reported on form W-2. Payments under an accountable plan are not reportable on a W-2 except in certain cases when you pay per diem or mileage allowance.
For all persons and corporations to whom you make payments in excess of $600 you must obtain a Taxpayer Identification Number (TIN) using form W-9. This form must be completely filled out and signed. If there is no signature, the payer may be liable for penalties and interest on payments made to the payee. As a general rule, you should require a W-9 from all companies and individuals with whom you do business.
If a corporation or an individual fails to supply you with a W-9, you are required to withhold 28% of the total due to the payee. Once a completed W-9 is received, you may release the withheld amount and you will not be required to withhold anything on future payments to the payee.
If a person claims to be a corporation, and therefore should not have payments reported to him on a 1099-MISC, you must obtain from that person a Taxpayer Identification Number (TIN). You must possess evidence that that “person” is indeed a corporation or issue that person a 1099-MISC. Persons claiming to be a corporation must complete a form W-9. Only then will the payer and payee be exempt from the backup withholding requirements.
If the payee fails to complete a W-9, the payer must withhold 28%. This withheld amount would be reported and submitted to the IRS via form 945 – Annual Return of Withheld Federal Income Tax – at the end of the calendar year. You would also report the amount withheld on form 1099-MISC in box 4 while the gross payments would generally be reported in box 7. Of course, if you do not have a TIN, your 1099 will be incomplete and you could be fined $50 per incorrect 1099.
Penalties are as follows:
If you file a correct return within 30 days of the due date, the fine is $15 per return.
If you file a correct return after 30 days of the due date but before August 1, the fine is $30 per correct return.
If you file a correct return after August 1, the fine will be $50 per return.
If you fail to provide correct payee statements and you can not show reasonable cause, the penalty would be $50 per statement.
If failure to provide a correct payee statement is due to intentional disregard of the requirements to furnish a correct payee statement, the penalty is at least $100 per payee statement with no maximum penalty.
If you willfully file a fraudulent information return for payments you claim you made to another person, that person may be able to sue you for damages. You may have to pay $5,000 or more.
This information was compiled from the following Internal Revenue Sources:
Instructions for Forms 1099, 1098, 5498, and W-2G
- Form W-9
- Instructions for the Requester of Form W-9
- Form 945
- e-file article on Backup Withholding
- e-file article on FAQs regarding Employee vs. Independent Contractor
This document is not intended to be exhaustive or all inclusive. For a complete understanding of these tax related matters, contact the Internal Revenue Service.
