Form 1099-MISC (Miscellaneous Income) – 2012 Guide
What Form 1099-MISC Is For
Form 1099-MISC is the IRS form businesses use to report various types of payments made during the year to independent contractors, service providers, and other non-employees. Think of it as a report card that tells both the IRS and the recipient how much money changed hands for specific types of payments.
If you're a business owner who paid someone for services, rent, royalties, prizes, or certain other income, you'll need to file this form. The person or business that received the payment will get a copy showing what they were paid, which they'll use when filing their own tax return. This form ensures that income doesn't slip through the cracks—it creates a paper trail that helps the IRS verify that everyone is reporting their income correctly.
When You’d Use Form 1099-MISC (Including Late and Amended Filings)
Regular Filing Timeline
For 2012 payments, you must file Form 1099-MISC with the IRS by February 28, 2013 (or April 1, 2013, if filing electronically). You must also provide a copy to the recipient by January 31, 2013, with special exceptions for certain boxes—if you're only reporting amounts in boxes 8 or 14 (substitute payments or gross proceeds to attorneys), the recipient deadline extends to February 15, 2013.
Extensions
If you need more time, you can request an automatic 30-day extension by filing Form 8809 before the original deadline. Under hardship conditions, you may qualify for an additional 30-day extension.
Late or Amended Filings
If you discover an error after filing—whether you reported the wrong amount, used an incorrect taxpayer identification number, or forgot to file entirely—you must correct it as soon as possible. Complete a new Form 1099-MISC, check the ""CORRECTED"" box at the top, fill in all information (not just what changed), and file it with the IRS along with a new Form 1096. You must also send a corrected statement to the recipient. Don't delay: penalties increase the longer you wait, and correcting errors promptly demonstrates good faith to the IRS.
Key Rules or Details for 2012
Reporting Thresholds
You must file Form 1099-MISC if you paid someone:
- $600 or more for: rents, services, prizes and awards (non-service related), medical and health care payments, crop insurance proceeds, cash for fish purchases, payments to attorneys, or other income
- $10 or more in royalties or broker payments in lieu of dividends or tax-exempt interest
- Any amount of fishing boat proceeds (regardless of dollar amount)
- $5,000 or more in direct sales of consumer products for resale (must indicate on the form)
Important Exceptions – Who You DON'T Report
- Corporations (with major exceptions: you MUST report payments to corporations for legal services, medical services, and fish purchases)
- Employees (use Form W-2 instead)
- Personal payments (only business-related payments count)
- Merchandise purchases (like buying office supplies)
- Tax-exempt organizations (churches, charities, government agencies)
- Real estate agents for rent (but the agent must report the rent they pass to the property owner)
2012-Specific Changes
- Good news for rental property owners: Congress repealed the 2011 requirement to report rental property expenses. You no longer need to file 1099-MISC forms for contractors who work on your rental properties.
- Privacy protection: You're now allowed to truncate (partially hide) the recipient's Social Security Number on the copy you send them—showing only the last four digits—for security purposes.
Electronic Filing Requirement
If you're filing 250 or more of any single type of form, you must file electronically unless you receive a hardship waiver. This threshold applies separately to each form type.
Step-by-Step (High Level)
Step 1: Determine If You Need to File
Ask yourself: Did I pay $600 or more (or $10 for royalties) to a non-employee in my business? If yes, proceed.
Step 2: Gather Information
Collect the recipient's full legal name, address, and taxpayer identification number (TIN)—either their Social Security Number or Employer Identification Number. You should have requested this using Form W-9 before making payments. Also compile your payment records showing exactly how much you paid and when.
Step 3: Obtain the Correct Forms
Download Form 1099-MISC and Form 1096 from IRS.gov or order them by calling 1-800-TAX-FORM. Don't use forms from previous years—the IRS scans these forms, and using the wrong year causes processing errors.
Step 4: Complete the Form
Fill out the form carefully, entering information in the correct boxes:
- Box 1: Rents
- Box 2: Royalties
- Box 3: Other income (prizes, awards not for services, certain damages)
- Box 6: Medical and health care payments
- Box 7: Nonemployee compensation (the most common box—for independent contractors and service providers)
- Box 14: Gross proceeds paid to attorneys
Enter your business name and taxpayer ID at the top, along with the recipient's information.
Step 5: File With the IRS
Send Copy A of all 1099-MISC forms to the IRS along with Form 1096 (the transmittal/cover sheet). Do not cut apart forms that are printed multiple to a page. Mail everything flat (not folded) to the appropriate IRS Service Center—Austin, TX, or Kansas City, MO, depending on your location.
Step 6: Provide Copies to Recipients
Give Copy B to each recipient by January 31, 2013. This gives them the information they need to file their own tax returns. You can mail it or deliver it in person.
Step 7: Keep Records
Retain copies of all forms for at least 3 years (4 years if backup withholding was involved) in case of IRS questions or audits.
Common Mistakes and How to Avoid Them
Mistake #1: Reporting in the Wrong Box
Many filers put rental payments in Box 7 instead of Box 1, or vice versa. The IRS matches these forms to recipient tax returns, and mismatches trigger notices. Solution: Use Box 1 for rents, Box 7 for services and nonemployee compensation. When in doubt, review the specific box instructions.
Mistake #2: Forgetting Corporate Exceptions
While most corporate payments aren't reported, many filers forget that payments to corporations for attorneys' fees and medical services must be reported. Solution: Always report payments to lawyers and doctors, even if they're incorporated.
Mistake #3: Missing or Incorrect Taxpayer Identification Numbers
This is the #1 cause of IRS notices. If the name and TIN don't match IRS records, you'll receive a ""B"" notice and may need to backup withhold. Solution: Always request Form W-9 before making payments, and double-check that you've entered the information exactly as provided.
Mistake #4: Reporting Personal Payments
Only payments made in the course of your trade or business are reportable. Hiring someone to paint your personal residence isn't reportable. Solution: Only file 1099-MISC for business-related payments.
Mistake #5: Including Reimbursed Expenses
When you pay a contractor $5,000 plus $500 for materials they purchased, some filers only report the $5,000. Solution: Report the total amount paid ($5,500) if supplying materials was incidental to the service.
Mistake #6: Using the Wrong Form for Employees
Independent contractors get Form 1099-MISC; employees get Form W-2. Misclassifying workers can lead to penalties and back taxes. Solution: Review IRS Publication 15-A to understand the distinction, or consult a tax professional if unsure.
Mistake #7: Filing One Form 1096 for Multiple Form Types
Each form type needs its own Form 1096 transmittal. Solution: If you're filing both 1099-INT and 1099-MISC forms, prepare two separate groups with separate Forms 1096.
What Happens After You File
Immediate Processing
The IRS scans your forms and matches the information against recipients' tax returns. This cross-checking happens electronically and helps the IRS verify that income is being reported correctly on both ends.
Recipient Requirements
The person or business that received the 1099-MISC must report the income on their tax return—typically on Schedule C (for self-employed individuals) or their business tax return. They may owe self-employment tax on the income in addition to regular income tax.
IRS Matching
Throughout the year following filing, the IRS compares your 1099-MISC forms to the recipients' tax returns. If someone doesn't report income that you documented, they'll receive a notice asking about the discrepancy.
If You Receive a Notice
The IRS may send you a CP2100 or CP2100A notice if there are name/TIN mismatches. This doesn't necessarily mean you did something wrong—sometimes recipients use different name variations or have recently changed names. You're required to request updated Form W-9 information from the recipient. If mismatches persist over multiple years, you may be required to backup withhold (deduct 28% of future payments and send it to the IRS).
Penalties
If you don't file on time, file with incorrect information, or fail to provide statements to recipients, the IRS can assess penalties ranging from $30 to $100 per form, depending on how late you file and whether there's intentional disregard. Maximum penalties can reach $1,500,000 per year for small businesses. However, penalties can be waived if you can show ""reasonable cause"" for the error—act quickly to correct mistakes.
FAQs
Q1: I paid my handyman $650 in cash over the course of the year. Do I need to file a 1099-MISC?
Yes, if the payments were for work related to your business. However, if you hired him for work on your personal residence and this isn't part of a rental or business activity, no 1099-MISC is required. Payments must be made ""in the course of your trade or business"" to be reportable.
Q2: I paid an attorney who works for a law firm that's incorporated. Do I still file a 1099-MISC?
Yes! This is a critical exception to the general rule. Even though corporations normally don't receive 1099-MISC forms, attorneys and law firms always do, regardless of their corporate status. Report attorneys' fees in Box 7 and gross proceeds paid to attorneys in Box 14.
Q3: What's the difference between Box 7 (Nonemployee Compensation) and Box 3 (Other Income)?
Box 7 is for payments for services—what you pay independent contractors, freelancers, and service providers. Box 3 is for other types of income like prizes, awards that aren't for services, certain types of damages, and payments to former insurance salespeople. The distinction matters because Box 7 income is subject to self-employment tax, while Box 3 income generally isn't.
Q4: I forgot to get a W-9 form before paying a contractor. What should I do now?
Request the W-9 immediately. If the contractor refuses or fails to provide their taxpayer identification number, you're required to backup withhold 28% from future payments. You still must file the 1099-MISC using whatever information you have—use the recipient's name and address, and backup withhold on future payments until they provide their TIN.
Q5: I made a mistake on a 1099-MISC I already filed. How do I fix it?
File a corrected form as soon as possible. Complete a new Form 1099-MISC with all the correct information (not just the changed items), check the ""CORRECTED"" box at the top, and submit it to the IRS with a new Form 1096. Also send a corrected copy to the recipient. Don't wait—the sooner you correct errors, the better, and it may help you avoid or reduce penalties.
Q6: Do I need to issue a 1099-MISC to my landlord for my business rent?
Yes, if you paid $600 or more in rent during the year for business property. However, if you paid rent to a real estate agent or property management company, you typically don't need to file a 1099-MISC—the agent is responsible for reporting the rent they pass along to the property owner.
Q7: Can I file Form 1099-MISC electronically for free?
The IRS provides the FIRE (Filing Information Returns Electronically) system for free electronic filing, but you need software that can create files in the IRS-specified format. The FIRE system doesn't offer a fill-in form option. Some IRS business partners offer low-cost or free preparation services for small businesses. If you're filing fewer than 250 forms, paper filing is perfectly acceptable and may be simpler.
Additional Resources
For More Information:
Visit IRS.gov/Form1099MISC for the latest forms, instructions, and updates, or call the IRS Information Reporting Customer Service at 1-866-455-7438.
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