Who Gets A 1099?
In many cases, the tax law requires third-party payers, such as small businesses or individuals, to report to the IRS payments they have made to subcontractors, attorneys, architects and other service providers.
Form 1099-MISC, Miscellaneous Income. is most commonly used by third-party payers to report payments made in the course of a trade or business to others for services. Third-party payers should report the following on Form 1099-MISC:
- Payments of $600 or more for services performed by persons not treated as employees, such as fees to subcontractors, attorneys or accountants
- R ent payments of $600 or more
- Prizes and awards of $600 or more that are not for services, such as TV show winnings
- Royalty payments of $10 or more
- Payments to certain crew members by operators of fishing boats
- Sales of $5,000 or more of consumer products to a person for resale anywhere other than in a permanent retail establishment
- Any payments from which federal income tax has been withheld under backup withholding rules
There are some exceptions. Form 1099-MISC is generally not required for payments: to a corporation ; for merchandise. telephone, freight, storage and similar items; of rent to a real estate agent or a tax-exempt organization; to the United States, any individual state, the District of Columbia, a U.S. possession or a foreign government
Third-party payers must provide a copy
of the form to the payee on or before Jan. 31 following the end of the tax year. For example, for services rendered during 2006, a payer must provide the form to its payee by Jan. 31, 2007. The payer must also file Forms 1099-MISC with the IRS by Feb. 28 (March 31, if filing electronically).
Box 7 : Non-Employee Compensation
One of the most common entries found on Form 1099-MISC is Box 7 for non-employee compensation. Examples of payments to be reported in Box 7 include:
- Professional service fees, such as fees to attorneys, accountants, architects, contractors and engineers.
- Fees paid by one professional to another, such as fee-splitting or referral fees.
- Payment for services, including payment for parts or materials used to perform the services if supplying the parts or materials was incidental to providing the service.
- Commissions paid to non-employee salespersons that are subject to repayment but not repaid during the calendar year.
- Fees paid to non-employees, including travel reimbursements for which the persons did not account to the payer, if the fee and reimbursement total at least $600.
- Payments to non-employee entertainers for services.
- Exchanges of services (bartering) between individuals in the course of their trades or businesses.
Generally, payments reported in Box 7 are subject to self-employment tax by the recipient. If the payments are not subject to self-employment tax, the third-party payer should report them as other income in Box 3.