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In the United States, '''Form 1099-MISC''' is a variant of [[Form 1099]] used to report miscellaneous income. One notable use of Form 1099-MISC is to report amounts paid by a business (including nonprofits<ref name="i1099msc" />{{rp|1}}) to a non-corporate US resident [[independent contractor]] for services (in IRS terminology, such payments are ''nonemployee compensation''). The ubiquity of the form has also led to use of the phrase "1099 workers" or "the 1099 economy" to refer to the independent contractors themselves.<ref>Forbes, The Rise of The 1099 Economy: More Americans Are Becoming Their Own Bosses, http://www.forbes.com/sites/joelkotkin/2012/07/25/the-rise-of-the-1099-economy-more-americans-are-becoming-their-own-bosses/</ref> Other uses of Form 1099-MISC include rental income, royalties, and [[Native American gaming|Indian gaming profits]].<ref name="efile_howto" />
#REDIRECT [[Form 1099]]

The form is issued by the payer (e.g. business) and is due to the recipient (e.g. contractor) by January 31 and to the [[Internal Revenue Service|IRS]] by February 28 each year for work done during the previous tax year.<ref name="penalties">{{cite web |url=https://turbotax.intuit.com/tax-tools/tax-tips/Small-Business-Taxes/Penalties-for-Not-Filing-a-1099-Misc-IRS-Form/INF19313.html |title=Penalties for Not Filing a 1099-Misc IRS Form |accessdate=January 19, 2016 |date=2015}}</ref><ref name="efile_howto">{{cite web|url = http://www.efile.com/how-to-file-1099-online-irs-form-1096/|title = What If I Have to Issue a 1099 Form?|publisher = efile.com|accessdate = January 16, 2016}}</ref> If the payer is registered to file electronically with the IRS the deadline for filing with the IRS is March 31.<ref name="i1099gi">{{cite web |url=https://www.irs.gov/pub/irs-pdf/i1099gi.pdf |title=2016 General Instructions for Certain Information Returns |accessdate=January 20, 2016 |date=2016}}</ref>

== Use cases ==

There are several use cases of Form 1099-MISC. Whether an income is taxable and whether it should be reported on Form 1099-MISC are distinct questions. There may be other forms, such as Form W-2 (for wages) or Form 1099-K (for payments made with a credit card) that must be filed instead.<ref name="i1099msc" />

=== Business–contractor arrangement ===

One common use of Form 1099-MISC is to report payments by a business to US resident independent contractors. For the purpose of this form, "business" includes nonprofits and other organizations.<ref name="i1099msc">{{cite web |url=https://www.irs.gov/pub/irs-pdf/i1099msc.pdf |title=2016 Instructions for Form 1099-MISC |accessdate=January 19, 2016 |publisher=Internal Revenue Service}}</ref>{{rp|1}} In this case Form 1099-MISC needs to be issued only when the total amount paid during the tax year is at least $600, though the Form may still be issued at lower amounts.<ref name="efile_howto" /> This is the case even if individual payment amounts are all less than $600. However, since Form 1099-MISC only concerns payments made to an individual as an independent contractor, if an individual becomes an employee later (see below), the $600 threshold need be met only for part of work done as an independent contractor.

In a business–contractor arrangement, the following must apply:

* Payer must be a business and not a private individual; personal payments should not be reported using this form.
* Payee must not be a business or employee (so must be a contract worker). Employee payments are covered by Form W-2.
* In general, payment must be in exchange for services rendered, although there are exceptions like oil and gas payments.<ref name="i1099msc" />{{rp|7}}

It is possible for a payee to start as a contractor and later become an employee. It is also possible for a payee to maintain two jobs—one as a contractor and the other as an employee—under the same payer. In these cases, the payee can receive both Form 1099-MISC and Form W-2.<ref name="chron">{{cite web |url=http://smallbusiness.chron.com/give-1099-w2-same-person-32664.html |title=How to Give a 1099 and W-2 to the Same Person |accessdate=January 20, 2016 |last=Zias |first=Kerry}}</ref><ref name="hrmorning">{{cite web |url=http://www.hrmorning.com/workers-can-be-both-employees-and-ics-irs-rules/ |title=Workers can be both employees and ICs, IRS rules |accessdate=January 20, 2016 |date=May 24, 2013 |last=Gould |first=Tim}}</ref>

===Other use cases===

Other uses of Form 1099-MISC include rental income, royalties, and [[Native American gaming|Indian gaming profits]].<ref name="efile_howto" />

=== Payments made through third-party networks ===

When payments are made through third-party networks, filing Form 1099-MISC is not required. Instead, Form 1099-K will be filed by the payment service.<ref name="smallbiz" /> Nevertheless Form 1099-MISC may still be issued.

=== Nonresident payee ===

A major difference exists for personal payments when the payee is a nonresident for tax purposes (including undocumented alien). In this case, Form 1099-MISC should still not be filed, but Form 1042-S (the corresponding form to Form 1099-MISC) must be issued even if the payer is a private individual (i.e. not a business or other organization). For instance, if one hires household help, then if the help is a US citizen or resident for tax purposes one need not issue a Form 1099, but if the payee is an undocumented alien one must issue a Form 1042-S.<ref name="pers_serv">{{cite web |url=https://www.irs.gov/Individuals/International-Taxpayers/Pay-for-Personal-Services-Performed |title=Pay for Personal Services Performed |accessdate=January 20, 2016}}</ref>

== Significance for payer ==

=== Liability ===

If the payer does not file Form 1099-MISC, there is a maximum penalty of $250 per form not filed, up to $500,000 per year. Otherwise for late filings the penalty varies from $30 to $100, depending on how late the filing was.<ref name="penalties" />

=== Relation with payer's tax filing ===

There is no precise match between total amount paid from Form 1099-MISCs issued and any line item in the profit/loss report, because of the constraint of not reporting money paid when the amount to an individual is less than $600. However, IRS may get suspicious if the profit/loss report suggests a large amount of money paid to independent contractors but few or no Form 1099-MISCs reported.

== Significance for payee ==

The payee will usually complete a Schedule C while filing their individual return using [[Form 1040]] (amount from Schedule C will go on line 12). For rents and loyalties, Schedule E is required (amount from this will go to line 17 of Form 1040).<ref name="penalties" /> Since the IRS receives Form 1099-MISCs from the payer, if the payee reports a smaller total than the sum of Form 1099-MISCs, the IRS can get suspicious. However, the sum of Form 1099-MISC amounts may not cover all of the payee's income as an independent contractor (due to payers who don't issue the form because of the $600 threshold or because of tax error on the payer's part, and also due to personal payments, which are not reportable on Form 1099-MISC). The payee still has a responsibility to pay taxes for the total amount. Another reason the Form 1099-MISCs may not sum up to the total income is if the income comes from individual payers rather than businesses.

=== Liability ===

There is a penalty to the payee for not paying income tax for the income referenced by Form 1099-MISC. The penalty is up to 20% of the underpayment.<ref name="penalties" />

=== Related forms ===

If a contractor is paid electronically using a service such as [[PayPal]], then the correct form to use is Form 1099-K, which the payment service will furnish. In other words, even if the payer paid more than $600, filing Form 1099-MISC is not required. However, Form 1099-MISC can still be filed, in which case both forms will be sent to the payee, causing the payment to be possibly over-reported if one simply sums the payments reported on each form. In addition, Form 1099-K is only issued when the payment is more than $20,000 and there were more than 200 transactions, in which case payment calculated from the forms may be under-reported. In such cases, it is necessary to track payments separately.<ref name="smallbiz">{{cite web |url=http://smallbiztrends.com/2015/01/1099-contractors-paypal-credit-card.html |title=Must You Send 1099 Forms to Contractors Paid Via PayPal or Credit Card? |accessdate=January 20, 2016 |date=January 26, 2015 |last=Campbell |first=Anita}}</ref><ref name="forbes_k">{{cite web |url=http://www.forbes.com/sites/kellyphillipserb/2014/08/29/credit-cards-the-irs-form-1099-k-and-the-19399-reporting-hole/ |title=Credit Cards, The IRS, Form 1099-K And The $19,399 Reporting Hole |accessdate=January 20, 2016 |date=August 29, 2014 |last=Phillips |first=Kelly |archiveurl=https://web.archive.org/web/20151214181250/http://www.forbes.com/sites/kellyphillipserb/2014/08/29/credit-cards-the-irs-form-1099-k-and-the-19399-reporting-hole/}}</ref>

=== Withholding and estimated tax payment ===

Form 1099 need not be attached to the payee's tax return if no tax was withheld.<ref>{{cite web |url=http://classroom.synonym.com/need-attach-1099-forms-federal-tax-return-7577.html |title=Do You Need to Attach 1099 Forms to a Federal Tax Return? |first=Naomi |last=Smith |accessdate=January 1, 2015}}</ref> In general, payer-sent forms are used to substantiate claims of withholding, so only forms that involve withholding need to be attached.

In almost all cases, income associated with Form 1099-MISC is not subject to withholding. However, income from [[Indian_Gaming_Regulatory_Act#Three_classes|class II or class III gaming]] as an Indian tribal member must be withheld.<ref name=i1099msc />{{rp|4}}

Withholding requirements are different for nonresident payees, in which case [[Form 1042-S]] is used instead.

Individuals whose income is primarily from Form 1099-MISC therefore need to send estimated tax payments through the [[Electronic Federal Tax Payment System]] (EFTPS) or by paper-filing Form 1040-ES with a check.

Even those who don't need to pay income tax may still owe some [[Social Security (United States)|social security]] or [[Medicare (United States)|Medicare]] taxes.<ref>{{cite web |url=https://turbotax.intuit.com/tax-tools/tax-tips/General-Tax-Tips/How-to-File-Taxes-with-IRS-Form-1099-MISC/INF19989.html |title=How to File Taxes with IRS Form 1099-MISC |accessdate=January 20, 2016 |date=2015}}</ref> So very low-income individuals who are self-employed may need to file returns whereas comparable individuals who work as an employee (whose income is withheld) may not.

==See also==

*[[Form 1040]]
*[[Taxation in the United States]]
*[[Misclassification of employees as independent contractors]]

==References==

{{reflist|30em}}

Revision as of 05:18, 21 January 2016

In the United States, Form 1099-MISC is a variant of Form 1099 used to report miscellaneous income. One notable use of Form 1099-MISC is to report amounts paid by a business (including nonprofits[1]: 1 ) to a non-corporate US resident independent contractor for services (in IRS terminology, such payments are nonemployee compensation). The ubiquity of the form has also led to use of the phrase "1099 workers" or "the 1099 economy" to refer to the independent contractors themselves.[2] Other uses of Form 1099-MISC include rental income, royalties, and Indian gaming profits.[3]

The form is issued by the payer (e.g. business) and is due to the recipient (e.g. contractor) by January 31 and to the IRS by February 28 each year for work done during the previous tax year.[4][3] If the payer is registered to file electronically with the IRS the deadline for filing with the IRS is March 31.[5]

Use cases

There are several use cases of Form 1099-MISC. Whether an income is taxable and whether it should be reported on Form 1099-MISC are distinct questions. There may be other forms, such as Form W-2 (for wages) or Form 1099-K (for payments made with a credit card) that must be filed instead.[1]

Business–contractor arrangement

One common use of Form 1099-MISC is to report payments by a business to US resident independent contractors. For the purpose of this form, "business" includes nonprofits and other organizations.[1]: 1  In this case Form 1099-MISC needs to be issued only when the total amount paid during the tax year is at least $600, though the Form may still be issued at lower amounts.[3] This is the case even if individual payment amounts are all less than $600. However, since Form 1099-MISC only concerns payments made to an individual as an independent contractor, if an individual becomes an employee later (see below), the $600 threshold need be met only for part of work done as an independent contractor.

In a business–contractor arrangement, the following must apply:

  • Payer must be a business and not a private individual; personal payments should not be reported using this form.
  • Payee must not be a business or employee (so must be a contract worker). Employee payments are covered by Form W-2.
  • In general, payment must be in exchange for services rendered, although there are exceptions like oil and gas payments.[1]: 7 

It is possible for a payee to start as a contractor and later become an employee. It is also possible for a payee to maintain two jobs—one as a contractor and the other as an employee—under the same payer. In these cases, the payee can receive both Form 1099-MISC and Form W-2.[6][7]

Other use cases

Other uses of Form 1099-MISC include rental income, royalties, and Indian gaming profits.[3]

Payments made through third-party networks

When payments are made through third-party networks, filing Form 1099-MISC is not required. Instead, Form 1099-K will be filed by the payment service.[8] Nevertheless Form 1099-MISC may still be issued.

Nonresident payee

A major difference exists for personal payments when the payee is a nonresident for tax purposes (including undocumented alien). In this case, Form 1099-MISC should still not be filed, but Form 1042-S (the corresponding form to Form 1099-MISC) must be issued even if the payer is a private individual (i.e. not a business or other organization). For instance, if one hires household help, then if the help is a US citizen or resident for tax purposes one need not issue a Form 1099, but if the payee is an undocumented alien one must issue a Form 1042-S.[9]

Significance for payer

Liability

If the payer does not file Form 1099-MISC, there is a maximum penalty of $250 per form not filed, up to $500,000 per year. Otherwise for late filings the penalty varies from $30 to $100, depending on how late the filing was.[4]

Relation with payer's tax filing

There is no precise match between total amount paid from Form 1099-MISCs issued and any line item in the profit/loss report, because of the constraint of not reporting money paid when the amount to an individual is less than $600. However, IRS may get suspicious if the profit/loss report suggests a large amount of money paid to independent contractors but few or no Form 1099-MISCs reported.

Significance for payee

The payee will usually complete a Schedule C while filing their individual return using Form 1040 (amount from Schedule C will go on line 12). For rents and loyalties, Schedule E is required (amount from this will go to line 17 of Form 1040).[4] Since the IRS receives Form 1099-MISCs from the payer, if the payee reports a smaller total than the sum of Form 1099-MISCs, the IRS can get suspicious. However, the sum of Form 1099-MISC amounts may not cover all of the payee's income as an independent contractor (due to payers who don't issue the form because of the $600 threshold or because of tax error on the payer's part, and also due to personal payments, which are not reportable on Form 1099-MISC). The payee still has a responsibility to pay taxes for the total amount. Another reason the Form 1099-MISCs may not sum up to the total income is if the income comes from individual payers rather than businesses.

Liability

There is a penalty to the payee for not paying income tax for the income referenced by Form 1099-MISC. The penalty is up to 20% of the underpayment.[4]

If a contractor is paid electronically using a service such as PayPal, then the correct form to use is Form 1099-K, which the payment service will furnish. In other words, even if the payer paid more than $600, filing Form 1099-MISC is not required. However, Form 1099-MISC can still be filed, in which case both forms will be sent to the payee, causing the payment to be possibly over-reported if one simply sums the payments reported on each form. In addition, Form 1099-K is only issued when the payment is more than $20,000 and there were more than 200 transactions, in which case payment calculated from the forms may be under-reported. In such cases, it is necessary to track payments separately.[8][10]

Withholding and estimated tax payment

Form 1099 need not be attached to the payee's tax return if no tax was withheld.[11] In general, payer-sent forms are used to substantiate claims of withholding, so only forms that involve withholding need to be attached.

In almost all cases, income associated with Form 1099-MISC is not subject to withholding. However, income from class II or class III gaming as an Indian tribal member must be withheld.[1]: 4 

Withholding requirements are different for nonresident payees, in which case Form 1042-S is used instead.

Individuals whose income is primarily from Form 1099-MISC therefore need to send estimated tax payments through the Electronic Federal Tax Payment System (EFTPS) or by paper-filing Form 1040-ES with a check.

Even those who don't need to pay income tax may still owe some social security or Medicare taxes.[12] So very low-income individuals who are self-employed may need to file returns whereas comparable individuals who work as an employee (whose income is withheld) may not.

See also

References

  1. ^ a b c d e "2016 Instructions for Form 1099-MISC" (PDF). Internal Revenue Service. Retrieved January 19, 2016.
  2. ^ Forbes, The Rise of The 1099 Economy: More Americans Are Becoming Their Own Bosses, http://www.forbes.com/sites/joelkotkin/2012/07/25/the-rise-of-the-1099-economy-more-americans-are-becoming-their-own-bosses/
  3. ^ a b c d "What If I Have to Issue a 1099 Form?". efile.com. Retrieved January 16, 2016.
  4. ^ a b c d "Penalties for Not Filing a 1099-Misc IRS Form". 2015. Retrieved January 19, 2016.
  5. ^ "2016 General Instructions for Certain Information Returns" (PDF). 2016. Retrieved January 20, 2016.
  6. ^ Zias, Kerry. "How to Give a 1099 and W-2 to the Same Person". Retrieved January 20, 2016.
  7. ^ Gould, Tim (May 24, 2013). "Workers can be both employees and ICs, IRS rules". Retrieved January 20, 2016.
  8. ^ a b Campbell, Anita (January 26, 2015). "Must You Send 1099 Forms to Contractors Paid Via PayPal or Credit Card?". Retrieved January 20, 2016.
  9. ^ "Pay for Personal Services Performed". Retrieved January 20, 2016.
  10. ^ Phillips, Kelly (August 29, 2014). "Credit Cards, The IRS, Form 1099-K And The $19,399 Reporting Hole". Retrieved January 20, 2016. {{cite web}}: |archive-url= requires |archive-date= (help)
  11. ^ Smith, Naomi. "Do You Need to Attach 1099 Forms to a Federal Tax Return?". Retrieved January 1, 2015.
  12. ^ "How to File Taxes with IRS Form 1099-MISC". 2015. Retrieved January 20, 2016.
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