Form 1099-MISC Miscellaneous Income 2013: A Complete Guide
What Form 1099-MISC Is For
Form 1099-MISC (Miscellaneous Income) is how businesses and organizations report payments they made to independent contractors, freelancers, and other non-employees during the 2013 tax year. Think of it as the tax form equivalent of a W-2, but for people who aren't on your payroll.
If you run a business and paid someone $600 or more during 2013 for services—such as a freelance web designer, a consultant, an accountant, or a contractor who fixed your roof—you generally need to file a 1099-MISC to report that payment to both the IRS and the person you paid. The form ensures that the IRS knows about income that workers received so they can report it on their own tax returns.
The form includes several boxes for different types of income: rents (Box 1), royalties (Box 2), other income (Box 3), medical and healthcare payments (Box 6), and nonemployee compensation (Box 7)—which is the most common box for independent contractor payments. You're only reporting payments made "in the course of your trade or business," meaning personal payments you make outside your business activities don't count. IRS.gov
When You’d Use Form 1099-MISC (Late/Amended)
Original Filing Deadlines
For 2013, you must file Form 1099-MISC with the IRS by February 28, 2014 (if filing on paper) or March 31, 2014 (if filing electronically). You must also send a copy to the recipient (the person you paid) by January 31, 2014. However, if you're reporting certain types of income like broker payments (Box 8) or attorney gross proceeds (Box 14), the recipient deadline is February 18, 2014. IRS.gov
Late Filing
Life happens, and deadlines get missed. If you file late but correct the mistake within 30 days of the original due date, you'll face a reduced penalty of $30 per form (maximum $250,000 for larger businesses or $75,000 for small businesses). File more than 30 days late but by August 1, and the penalty increases to $60 per form. File after August 1 or don't file at all? That jumps to $100 per form, with a maximum penalty of $1.5 million ($500,000 for small businesses). IRS.gov
Amended/Corrected Returns
Did you discover an error after filing—wrong amount, misspelled name, incorrect taxpayer identification number? You need to file a corrected Form 1099-MISC. Mark the "CORRECTED" checkbox at the top of the form and include all the correct information (not just what changed). Send the corrected form to both the IRS and the recipient. You can avoid or reduce penalties if you file corrections by August 1, 2014—especially under the "de minimis rule," which excuses up to 10 incorrect returns or ½ of 1% of your total filings if corrected by that date. IRS.gov
Extensions
Need more time? You can get an automatic 30-day extension by filing Form 8809, and under certain hardship conditions, you might qualify for an additional 30 days. Just be sure to file Form 8809 by the original due date of the returns.
Key Rules or Details for 2013
Understanding the key rules helps you avoid costly mistakes:
1. The $600 Threshold
You generally must file Form 1099-MISC if you paid someone $600 or more during 2013 for services, rents, or certain other types of income. Royalties require filing at just $10 or more. IRS.gov
2. Trade or Business Only
You only file 1099-MISC for payments made in the course of your trade or business. Personal payments—like paying your neighbor $700 to paint your house as a private homeowner—aren't reportable. But if you own a property management company and pay that same neighbor $700 to paint a rental property you manage, you'd need to file. IRS.gov
3. The Corporation Exception (With Exceptions)
Generally, you don't need to file 1099-MISC for payments made to corporations. However, there are important exceptions: you must report payments to corporations for medical/healthcare services (Box 6), attorneys' fees (Box 7), and attorney gross proceeds (Box 14). You must also report fish purchases for cash and substitute payments to corporations. IRS.gov
4. Multiple Copy Requirements
You must file Copy A with the IRS (along with Form 1096, which is the transmittal summary), and you must provide the recipient with their copy (usually Copy B) showing the same information.
5. Taxpayer Identification Numbers (TINs) Are Critical
You must collect and report the recipient's TIN (usually their Social Security Number or Employer Identification Number) using Form W-9. Errors in TINs trigger penalties and backup withholding requirements. The IRS treats incorrect or missing TINs as "never inconsequential" errors. IRS.gov
6. Electronic Filing Requirement
If you file 250 or more of any one type of information return (including 1099-MISC), you must file electronically through the IRS FIRE system. You can request a waiver using Form 8508 if you have a valid hardship reason. IRS.gov
Step-by-Step (High Level)
Step 1: Gather Information
Before you start, collect Form W-9 from everyone you paid $600 or more during 2013. The W-9 provides their name, address, and TIN. Do this before you make payments—it's much easier than tracking people down later.
Step 2: Determine What to Report
Review your business payments for the year. Identify which payments qualify: independent contractor services, rents, royalties, prizes, awards, medical payments, and attorney fees are common examples. Don't include employee wages (those go on W-2), payments for merchandise, or payments to most corporations (unless they fall under the exceptions).
Step 3: Obtain the Forms
Download official IRS forms from IRS.gov or order paper forms by calling 1-800-TAX-FORM. Don't use photocopies—the IRS uses scanning technology, and photocopies won't process correctly.
Step 4: Complete the Form
Fill out Form 1099-MISC for each recipient. Enter your business information (payer) at the top, the recipient's information in the middle, and report payments in the appropriate boxes. Most independent contractor payments go in Box 7 (Nonemployee Compensation). Use Box 1 for rent, Box 2 for royalties, and Box 6 for medical/healthcare payments. Include federal income tax withheld in Box 4 if you backup withheld.
Step 5: Complete Form 1096
Form 1096 is the summary transmittal that accompanies your 1099-MISC forms to the IRS. It totals the number of forms you're submitting and the total dollar amounts. You need a separate Form 1096 for each type of form you're filing (one for all your 1099-MISC forms, a separate one if you're also filing 1099-INT, etc.).
Step 6: File With the IRS
Mail paper forms with Form 1096 to the appropriate IRS Service Center by February 28, 2014 (or file electronically by March 31, 2014). Use First-Class Mail, send forms flat (not folded), and mail Copy A only. IRS.gov
Step 7: Provide Recipient Copies
Give recipients their copies (Copy B) by January 31, 2014. You can mail or hand-deliver them.
Step 8: Keep Records
Retain copies of all filed forms for at least 3 years from the due date (4 years if you imposed backup withholding). IRS.gov
Common Mistakes and How to Avoid Them
Mistake #1: Forgetting the Corporation Exceptions
Many businesses know corporations are generally exempt from 1099-MISC reporting—but they forget about the exceptions. Always file for corporate attorneys, medical providers, and certain other categories mentioned above.
Mistake #2: Missing or Incorrect TINs
This is the #1 cause of penalties. The IRS considers TIN errors "never inconsequential." Always request Form W-9 before making payments. If someone refuses to provide their TIN, you may need to backup withhold 28% of their payment. IRS.gov
Mistake #3: Using the Wrong Box
Putting income in the wrong box creates confusion and potential penalties. Box 7 is for nonemployee compensation (independent contractors). Box 3 is for "other income" like prizes or certain termination payments. Using the wrong box means the IRS may not properly match the income to the recipient's tax return.
Mistake #4: Duplicate Filing
Don't submit the same information to the IRS twice. If you discover additional forms are needed after your original filing, submit only the new forms with a new Form 1096—don't resend previously filed returns. IRS.gov
Mistake #5: Format Errors on Paper Forms
The IRS scans paper forms, so they must be machine-readable. Common errors include: using photocopies, handwriting forms illegibly, forgetting decimal points in dollar amounts (write "1230.00" not "1230"), stapling forms together, or submitting cut or torn forms. Use official IRS forms and type entries in black ink, 12-point Courier font when possible. IRS.gov
Mistake #6: Failing to File Electronically When Required
If you file 250 or more 1099-MISC forms, you must file electronically unless you have an approved waiver. Failing to do so results in up to $100 per return in penalties. IRS.gov
Mistake #7: Missing Recipient Deadlines
While you have until late February to file with the IRS, recipients must receive their copies by January 31 (or February 18 for certain payments). Missing this deadline triggers separate penalties.
What Happens After You File
Once you file Form 1099-MISC, several things occur:
IRS Matching Process: The IRS uses sophisticated computer systems to match the information you reported on Form 1099-MISC with the income recipients report on their individual tax returns. If the amounts don't match—or if the recipient doesn't report the income at all—the IRS may send a notice to the recipient and potentially audit their return.
Recipient Reporting: Recipients use the information on Form 1099-MISC to complete their tax returns. Nonemployee compensation (Box 7) typically gets reported on Schedule C (Profit or Loss from Business) and may be subject to self-employment tax. Other types of income go on different lines of Form 1040.
Potential IRS Notices: If there are problems with your filing—like mismatched TINs, missing information, or late filing—the IRS will send you a notice. Common notices include CP2100/CP2100A (TIN mismatch notices) informing you that the name and TIN combination you reported doesn't match IRS records. You may need to request corrected information from recipients and file corrected returns.
Backup Withholding Consequences: If you failed to backup withhold when required (for example, when a recipient didn't provide a TIN), the IRS may assess penalties and require you to pay the amount that should have been withheld.
Record Retention: Keep your filed copies for at least 3 years (4 years if backup withholding was involved) in case of IRS inquiries or audits. The IRS can verify your filings during examinations of your business returns.
FAQs
Q1: Do I need to file Form 1099-MISC for someone I paid $500?
No. The general threshold is $600 or more for most types of payments reported on Form 1099-MISC. There are exceptions (royalties require filing at $10 or more), but for independent contractor services, the $600 threshold applies. IRS.gov
Q2: I paid an LLC $5,000 for consulting services. Do I file a 1099-MISC?
It depends on how the LLC is taxed. If the LLC is taxed as a corporation (C-corp or S-corp), you generally don't need to file 1099-MISC—unless they're an attorney, in which case you must file. If the LLC is a single-member LLC or partnership (taxed as a disregarded entity or partnership), you do need to file. This is why collecting Form W-9 is critical—it tells you the entity's tax classification.
Q3: What if the recipient refuses to provide their Social Security Number?
If a recipient refuses to provide their TIN, you generally must begin backup withholding at 28% on future payments. You may still need to file Form 1099-MISC showing the payments and the backup withholding amount, even if you don't have their TIN. Failure to backup withhold when required can result in penalties. IRS.gov
Q4: Can I e-file Form 1099-MISC even if I have fewer than 250 forms?
Yes! While you're only required to file electronically if you have 250 or more, the IRS encourages electronic filing for any number of returns. You'll need to apply for approval using Form 4419 at least 30 days before the due date, and you'll file through the IRS FIRE system. Many businesses find e-filing faster and more accurate. IRS.gov
Q5: I made a mistake on a 1099-MISC I already filed. How do I correct it?
File a corrected Form 1099-MISC by checking the "CORRECTED" box at the top of the form. Enter all the correct information (not just what changed) and file it with the IRS using a new Form 1096. Also send a corrected copy to the recipient. If you correct the error by August 1, 2014, you may avoid or reduce penalties. IRS.gov
Q6: What's the difference between Box 3 and Box 7?
Box 7 (Nonemployee Compensation) is for payments to independent contractors and others for services performed for your business—like paying a freelancer or consultant. Box 3 (Other Income) is for miscellaneous payments that don't fit other categories, such as prizes, awards not for services, certain termination payments, and damages. Putting payments in the wrong box can cause matching problems with the IRS. IRS.gov
Q7: I'm a small business owner who occasionally hires contractors. Am I subject to the same penalties as large corporations?
Penalty amounts are the same, but maximum penalties are lower for small businesses (defined as having average annual gross receipts of $5 million or less for the prior 3 years). For example, if you file late but within 30 days, the maximum penalty is $75,000 for small businesses versus $250,000 for larger businesses. The per-form penalty amounts ($30, $60, or $100 depending on lateness) apply regardless of business size. IRS.gov
Sources
All information in this guide comes from official IRS.gov documents:
- 2013 Instructions for Form 1099-MISC
- 2013 General Instructions for Certain Information Returns
