Form 1099-MISC Miscellaneous Income 2010: A Complete Guide

Form 1099-MISC is one of the most common tax forms businesses use to report various types of payments to non-employees and service providers. If you paid someone $600 or more during 2010 for services, rent, or other business-related expenses, chances are you need to understand this form. This guide breaks down everything you need to know about Form 1099-MISC for the 2010 tax year in plain English.

What Form 1099-MISC Is For

Form 1099-MISC serves as the IRS's way of tracking income that people receive outside of regular employment. Think of it as the counterpart to the W-2 form that employees receive—but this one is for independent contractors, landlords, and others who provide services or receive certain types of payments in the course of business.

You must file Form 1099-MISC when you paid someone:

• $600 or more for services performed by non-employees (like independent contractors, freelancers, or consultants)
• $600 or more in rents (office space, equipment, or land)
• $600 or more in prizes, awards, or other income payments
• $600 or more for medical and health care services
• $10 or more in royalties or broker payments in lieu of dividends
• Any amount to attorneys for legal services (even to corporations)

Important limitation: These reporting requirements only apply to payments made "in the course of your trade or business." Personal payments—like paying your neighbor to mow your lawn at home—are not reportable on Form 1099-MISC.

Key exceptions where you don't need to file include payments to corporations (with specific exceptions like attorney fees and medical services), payments to employees (use Form W-2 instead), and purchases of merchandise or inventory.

IRS Instructions for Form 1099-MISC (2010)

When You’d Use Form 1099-MISC (Late/Amended Filing)

Standard Filing Deadlines

For 2010 returns, the deadlines were:

• To recipients (Copy B): January 31, 2011
• To IRS on paper (Copy A): February 28, 2011
• To IRS electronically: March 31, 2011
• Special deadline: If reporting payments in Box 8 (substitute payments) or Box 14 (gross proceeds to attorneys), recipient statements were due February 15, 2011

Filing Late or Amended Returns

If you missed the deadline, you can still file, but penalties will apply unless you can show reasonable cause. The IRS doesn't have a separate "late" form—you simply file the regular Form 1099-MISC as soon as possible.

If you need to correct an error, follow these steps:

• Obtain a new blank Form 1099-MISC
• Check the "CORRECTED" box at the top of the form
• Fill in all the information correctly (not just what changed)
• File the corrected form with the IRS and send a copy to the recipient
• Never mark the "VOID" box when sending to the IRS—"VOID" is only for your records when you're replacing a form before filing

Requesting an extension: You can get an automatic 30-day extension by filing Form 8809 by the original due date. No explanation is required for the first 30 days. For an additional 30 days (in hardship situations), you must provide justification.

2010 General Instructions for Certain Information Returns

Key Rules or Details for 2010

The $600 Threshold Rule

Most payments require reporting only when they total $600 or more during the calendar year. However, royalties and certain broker payments have a lower threshold of just $10.

Trade or Business Requirement

You must be making payments "in the course of your trade or business." Nonprofit organizations, government agencies, and trusts of qualified pension plans are considered to be engaged in a trade or business for these purposes.

Corporate Payments Exception

Generally, you don't report payments to corporations. However, you must report payments to corporations for:

• Attorney fees and legal services
• Medical and health care services
• Fish purchases for cash
• Payments by federal executive agencies for services (vendors)

Independent Contractor vs. Employee

Correctly classifying workers is crucial. If someone is truly your employee, don't use Form 1099-MISC—use Form W-2 instead. The distinction generally depends on how much control you have over how, when, and where the person works.

Electronic Filing Requirement

If you file 250 or more of any single type of form (for example, 250 or more Forms 1099-MISC), you must file electronically. This requirement applies separately to each form type.

Taxpayer Identification Numbers (TINs)

You must obtain the recipient's correct TIN (usually their Social Security Number or Employer Identification Number) before or at the time of payment. Use Form W-9 to collect this information. If you don't get a valid TIN, you may need to withhold 28% of payments as backup withholding.

IRS Instructions for Form 1099-MISC (2010)

Step-by-Step (High Level)

Step 1: Determine if you need to file

Review all your business payments for the year. Identify anyone you paid $600 or more (or $10 for royalties) who wasn't an employee or corporation (with the exceptions noted above).

Step 2: Gather information

Collect each recipient's legal name, address, and TIN. You should have obtained Form W-9 from them at or before the time of payment.

Step 3: Obtain the correct forms

Download forms from IRS.gov or order them by calling 1-800-TAX-FORM (1-800-829-3676). You need Copy A (red form for IRS), Copy B (for recipient), and Copy 2 (for recipient's state return if applicable).

Step 4: Complete the forms

Fill out a separate Form 1099-MISC for each recipient. Type entries using black ink in 12-point Courier font if possible—handwritten forms must be completely legible. Report the payment in the correct box (Box 7 for nonemployee compensation is most common).

Step 5: Send to recipients

Mail or provide Copy B to each recipient by the deadline (typically January 31). Keep Copy C for your records.

Step 6: File with the IRS

Mail Copy A with Form 1096 (the transmittal form) to the appropriate IRS Service Center (Austin, TX, or Kansas City, MO, depending on your location). If filing electronically, submit through the FIRE system by March 31.

Step 7: Keep records

Retain copies for at least 3 years from the due date (4 years if backup withholding was involved).

IRS Instructions for Form 1099-MISC (2010)

Common Mistakes and How to Avoid Them

Mistake #1: Reporting in the wrong box

Each type of payment has a designated box. Nonemployee compensation goes in Box 7, rents in Box 1, royalties in Box 2, etc. The IRS uses box numbers to verify recipient reporting, so using the wrong box can trigger audits.

Solution: Review the instructions for each box carefully before entering amounts.

Mistake #2: Reporting payments to corporations

Many filers unnecessarily report payments to corporations, which aren't generally required.

Solution: Verify whether the payment falls under one of the exceptions (attorney fees, medical services, etc.) before filing.

Mistake #3: Missing or incorrect TINs

This is the most common error and results in IRS notices and potential penalties.

Solution: Always collect Form W-9 before making payments. If you receive an IRS notice about an incorrect TIN, send a "B notice" to the recipient requesting corrected information.

Mistake #4: Misclassifying employees as independent contractors

This can lead to serious tax consequences, including employment tax liabilities and penalties.

Solution: Use IRS Publication 15-A to understand worker classification rules, or file Form SS-8 to request an IRS determination.

Mistake #5: Including personal payments

Only payments made in the course of your trade or business are reportable.

Solution: Keep clear records separating business and personal expenses.

Mistake #6: Filing on paper when required to file electronically

If you file 250 or more forms, paper filing can result in penalties.

Solution: Count your forms early in the year and set up electronic filing through the FIRE system if needed.

Mistake #7: Using script or colored ink on paper forms

Copy A (the red form) is machine-read, and illegible forms cause processing delays.

Solution: Type forms in black ink, 12-point Courier font, or use professional tax software.

IRS Instructions for Form 1099-MISC (2010)

What Happens After You File

Immediate processing

The IRS scans and processes Copy A forms. Electronic submissions are processed more quickly than paper forms.

IRS matching program

The IRS matches the information you report against what recipients report on their tax returns. Discrepancies can trigger notices to you or the recipient.

CP2100 or CP2100A notices

If you reported an incorrect TIN, the IRS will send you a notice (typically in the fall following the tax year). You must then send a "B notice" to the recipient requesting corrected information.

Recipient tax filing

Recipients use the information from Form 1099-MISC to complete their tax returns. Self-employed individuals report Box 7 income on Schedule C, while rental recipients report Box 1 amounts on Schedule E.

Potential audits

Significant discrepancies between your Form 1099-MISC and the recipient's tax return can trigger examinations of either party.

State reporting

Many states require you to file copies of Form 1099-MISC with state tax authorities as well. Check your state's requirements.

Record retention

Keep your copies for at least 3 years in case of questions or audits.

2010 General Instructions for Certain Information Returns

FAQs

Q1: I paid someone $650 in 2010, but they're incorporated. Do I still need to file Form 1099-MISC?

Generally, no. Payments to corporations are exempt from Form 1099-MISC reporting with specific exceptions: attorney fees (Box 7 or 14), medical and health care payments (Box 6), fish purchases for cash (Box 7), substitute payments in lieu of dividends (Box 8), and payments by federal agencies for services. If your payment doesn't fall into these categories, you don't need to file.

Q2: What's the difference between Box 7 (Nonemployee Compensation) and Box 3 (Other Income)?

Box 7 is for payments to independent contractors, freelancers, and self-employed individuals for services performed in your business—these amounts are subject to self-employment tax. Box 3 is for miscellaneous payments like prizes, awards, damages, certain termination payments, and other income not fitting elsewhere. Using the correct box is critical because it affects how recipients report the income.

Q3: I forgot to get a W-9 from a contractor before paying them. What should I do?

Request Form W-9 immediately. If the contractor refuses or fails to provide it, you must begin backup withholding at 28% on any future payments until they comply. For the 2010 payment already made, file Form 1099-MISC with the information you have (use their name and address). The IRS will likely send you a notice about the missing TIN, at which point you must send a "B notice" to the contractor.

Q4: Can I file an amended Form 1099-MISC if I discover an error after the deadline?

Yes. File a corrected Form 1099-MISC as soon as you discover the error. Check the "CORRECTED" box at the top and complete all information correctly (not just the changed fields). Send it to both the IRS and the recipient. Filing corrected returns promptly can help minimize penalties.

Q5: I hired someone to paint my office and paid them $800. They also fixed my home deck for $400. Do I report $1,200 on Form 1099-MISC?

No. Only report the $800 paid for business services (painting your office). The $400 for personal services (home deck) is not reportable because it wasn't paid in the course of your trade or business. Keep separate records to document the business versus personal nature of payments.

Q6: What penalties could I face for not filing Form 1099-MISC or filing it late?

For 2010 returns filed in 2011, penalties are: $15 per form if you file within 30 days late (maximum $75,000 total); $30 per form if filed more than 30 days late but by August 1 (maximum $150,000); or $50 per form if filed after August 1 or not at all (maximum $250,000). Small businesses have lower maximum penalties. Intentional disregard carries a minimum $100 penalty per form with no maximum. However, penalties may be waived if you can show reasonable cause.

Q7: Do I need to report payments for both labor and materials, or just labor?

Report the total payment including both labor and materials if supplying the materials was incidental to providing the service. For example, if you paid an auto repair shop $1,000 ($600 for labor, $400 for parts), report the full $1,000 in Box 7 because providing parts was incidental to the repair service. However, if you separately purchased merchandise for resale, don't include those amounts.

IRS Instructions for Form 1099-MISC (2010)

Important Note: This guide is based on official IRS instructions for the 2010 tax year. Tax laws and forms may have changed since then. For current tax year guidance, always consult the most recent IRS instructions at IRS.gov.

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