1099-MISC Instructions and How to Read the Tax Form
In tax year 2020, the IRS reintroduced Form 1099-NEC for reporting independent contractor income, otherwise known as nonemployee compensation. If you’re self-employed, income you receive during the year might be reported on the 1099-NEC, but Form 1099-MISC is still used to report certain payments of $600 or more you made to other businesses and people. This article covers the 1099-MISC instructions to help you navigate this updated form.
Key Takeaways
- You'll use Form 1099-MISC to report your payments of $600 or more to certain businesses and individuals, but it doesn't include nonemployee compensation anymore—that's for Form 1099-NEC.
- If you're receiving rents, then you might receive a 1099 from your tenant showing an amount in Box 1.
- If you receive royalties, then you might receive a 1099 with an amount in Box 2.
- Box 3 is for other income of $600 or more that doesn't fit in the other boxes, like payments for medical research participation or monetary prizes or awards.
Form 1099-MISC
Form 1099-MISC used to be a self-employed person's best friend at tax time. However, this form recently changed, and it no longer includes nonemployee compensation the way it did in the past. You may have looked in Box 7 of Form 1099-MISC to see how much a business or client reported that they paid you. Now, that information comes from Form 1099-NEC starting in tax year 2020. However, you can still use Form 1099-MISC for reporting nonemployee compensation for tax years prior to 2020.
The 1099-MISC form remains largely the same, with the exception of a few boxes, now that nonemployee compensation is reported on Form 1099-NEC instead. Think of Form 1099-MISC as source of one of the many expenses or income sources for your Form 1040 each year. This guide will provide the 1099-MISC instructions you'll need when preparing your tax return or reporting payments made to others, as well as insight into the key pieces of information reported on the new 1099-MISC.
Box 1: Rents
If someone pays you rent for office space, machinery, farmland, or pasture, you would report that figure in Box 1. Only amounts of $600 or more are required to be reported.
Box 2: Royalties
Box 2 is for reporting any royalties you received of $10 or more. Royalties generally cover license fees for copyrights, patents, and trademarks.
Box 3: Other income
In Box 3, include any other income of $600 or more which cannot be reported in any of the other boxes on the form.
Some examples of other income types reported in this box include:
- A payment or series of payments made to individuals participating in a medical research study
- Termination payments to former self-employed insurance salespeople
- Payments received as punitive damages, damages for nonphysical injuries or sickness, and any other taxable damages
- Monetary prizes or awards
Box 4: Federal income tax withheld
If you withheld taxes for a person who has not furnished a taxpayer identification number or who is subject to backup withholding, report this figure here.
Box 7: Payer made direct sales of $5,000 or more
In this instance, you simply enter an "X" in the checkbox for sales by you of $5,000 or more of consumer products to a person on a buy-sell, deposit-commission or other commission basis for resale anywhere other than in a permanent retail establishment. Do not include a dollar figure here.
TurboTax Tip:
Don't forget the deadlines. Send Form 1099-MISC to recipients by January 31 following the tax year of the payments. If you're mailing the forms to the IRS, do it by February 28, or by March 31 if you're filing electronically.
Other 1099-MISC boxes
Most of the remaining boxes on 1099-MISC cover specific types of payments.
For example, Box 5 covers the individual's share of all proceeds from the sale of a catch or the fair market value of a distribution in kind to each crew member of a fishing boat. Box 6 is for payments received for providing health care services.
If you're stuck, the back of the form provides a brief description of the types of payments to be reported in each box.
What are the deadlines to send and file 1099-MISC?
The deadline to send Form 1099-MISC each year to recipients is January 31 following the tax year in which payments were made. You have more time to file these with the IRS, with forms sent by mail needing to go out by February 28 and March 31 if filed electronically.
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