Posted by Dennis Jao

What is the Form 1099-MISC: The Miscellaneous Income?

What is the Form 1099-MISC: The Miscellaneous Income?

Form 1099-MISC (miscellaneous income) is an IRS form that taxpayers use to report non-employee compensation. This is generally a commercial payment, not a personal payment.

Freelancers, independent contractors, self-employed individuals, and sole proprietors, for example, receive one from each client who pays them $600 or more in a calendar year. The Form is also used to report various miscellaneous compensations, such as premiums, rents, health care payments, and payments to a lawyer.

A Form 1099-MISC is one of many in the 1099 series and one of the most widely used. Taxpayers receive Form 1099-MISC immediately after the end of the fiscal year.


What is Form 1099-MISC?

Form 1099-MISC is completed and sent by someone who has paid at least $10 in royalties or brokers instead of dividends without taxes or interest to anyone else. The Form is also sent to anyone who has received at least $600 in:

  • Any fishing boat proceeds

  • Awards and recognitions

  • Cash payments for fish purchased by anyone living off fishing

  • Income from agricultural insurance

  • Medical and health payments

  • Money paid from a notional principal contract to a natural person, partnership, or property

  • Other income payments

  • Payments to a lawyer

  • Rent

  • Services provided by someone other than an employee


How to read the Form 1099-Misc

The top left of the Form contains information about the payer, and your information is on the left lower side of the 1099-MISC Form. Your full social security number (SSN) will probably be printed as well, or maybe just the last two digits. Although your full SSN is required for other forms, such as W-2, in 1099-MISC, the first digits can be removed to protect your privacy. No matter what is printed on the Form, the creditor will send you the full Social Security number with copy A when sent to the IRS.

Some relatively new regulations require certain payers to meet the requirements of the Law on FATCA (Foreign Account Tax Compliance Act) by checking the box listed on Form 1099-MISC. If there is a check in the FATCA box, you may have a FATCA reporting requirement. Ignore the checkbox in this box at your own risk - the consequences of FATCA mistakes can be very serious, including being charged with a felony.

Box 1: If you received more than $ 600 in revenue during the year, Box 1 is where the amount would be. 

Box 2: This box shows the royalty payments over $10 gross. This includes royalties for gas, oil, or minerals. It does not include surface royalties (reported in the amount in box1), oil or gas payments for exploration interest (reported in box 7 amount), or royalties arising from timber pay-as-cut (which have their Form). Intangible royalty payments are also shown in Box 2, such as trade names, trademarks, copyrights, and patents.

Box 3: If you were lucky and won a lottery, these winnings can be reported in box 3. This includes winnings from Indian games, awards, prizes (including winnings for fantasy sports), taxable damages, and other income over $600. It also reports the amounts received from the beneficiaries of the deceased employees. Box 3 is used to report income that cannot be reported on other boxes or forms. In general, the number in box 3 will go to line 21 of Form 1040, in the line "other income." However, if the value comes from a company or transaction, it must be reported in Appendix C and Appendix F.

Box 4:  If a federal tax is withheld, the amount will be in box 4. This is usually due to withholding tax for individuals who have not provided their tax identification number (TIN) or another requirement for backup withholding.

Box 5: Although this is unlikely to apply to many, income from fishing vessels will be included in this box. This item includes any part of the proceeds from the sale of the catch and the fair market value of in-kind distributions to ships that normally have less than ten crew members. Also, cash payments of less than $100 per trip, dependent on minimum catch and paid only due to additional charges, are shown in box 5. However, salaries will be on W-2 and not 1099-MISC.

Box 6: Payments received of at least $600 as a physician or other medical or health services provider will be included in the amount in box 6. This only applies to payments made during business consultation and not to personal visits. It also includes payments from insurance companies under accident, sickness, and health insurance programs. Payments made under Flexible Spending Arrangements (FSAs) or Health Reimbursement Arrangements (HRAs) may be excluded from reporting obligations. The exemption from the issuance of Form 1099-MISC for corporations does not apply to payments for medical treatment or medical services to corporations, including professional corporations. 

Box 7: Box 7 indicates an employee salary greater than $ 600. While most people associate employee wages with self-employment, this also includes commissions, salaries, bonuses, and prizes for employees' services (assuming companies don't get paid). This also includes other types of compensation paid for business conduct services by anyone other than your employee. It also includes cash purchases of fish.

As mentioned above, you will also see the oil and gas labor interest for the amount shown here. If you are doing business, these payments will be shown on Schedule C, subject to self-tax. 

Box 7 also shows the fees for professional services (e.g., contractors and accountants), as well as specific fees, fee-sharing agreements, benchmark agreements, additional benefits, and bartering fees.

Payments known as "golden parachutes," as well as unqualified deferred compensation (included in gross income because the plan did not meet Section 409A requirements) are also shown in this chart.

Box 8: This refers to replacement payments rather than dividends or interest. This includes total payments of $10 or more than a broker receives for their client instead of dividends with no taxes or interest owed on the client's stock loan.

Box 9: This box will be checked if you have won products with a value of at least $ 5,000 due to a down payment, purchase and sales tax, or other types of resale tax.

Box 10: This shows insurance payments of at least $ 600 paid to a farmer through a farm insurance policy.

Box 11: Will be blank.

Box 12: Will also be blank

Box 13: refers to income from gold parachutes subject to a 20% consumption tax.

Box 14:This contains the gross amounts of at least $ 600 paid to lawyers. This is the case even if the lawyer is a corporation or even if the payer has not received legal services. 

Box 15: Boxes 15a and 15b are usually empty, as the report for section 409A can be run on other Forms. If box 15b has an entry, it must also have the value of box 7.

Box 16 - Box 18

Boxes 16, 17, and 18 show the situation in one or two states. The IRS doesn't ask for this information, but it's useful if you're in one of the states with income tax (like most). Often the amounts on the 1099-MISC Form are the same from a tax and federal perspective. If the money were withheld for state tax, it would show up in the amount in box16, although this is not very common.


Bottom Line

Remember that income is considered income. Even if you don't receive the 1099-MISC, that doesn't mean you don't have to report all income. Even if your income is not declared on a particular form, you must include it in taxes (unless expressly excluded). As always, contact a professional if you have any questions.


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