What the Form Is For

Form 1099-MISC (Miscellaneous Income) is an information return used to report various types of payments made during the year in the course of your trade or business. Think of it as a report card that businesses and organizations must send to the IRS and to individuals or entities who received certain types of income that aren't regular employee wages.

The form captures payments such as rent ($600 or more), royalties ($10 or more), prizes and awards, other income payments, medical and health care payments, nonemployee compensation (like payments to independent contractors for $600 or more), substitute payments in lieu of dividends or interest, crop insurance proceeds, and attorneys' fees. Unlike Form W-2, which reports employee wages, Form 1099-MISC is primarily used for payments to non-employees and for specific types of business transactions. IRS

For 2014, you must file this form if you paid someone at least $600 in most categories (with some exceptions, like royalties which only require $10), and the payment was made during the course of operating your business. Personal payments don't need to be reported—only those made as part of running a business, including nonprofit organizations, trusts, government agencies, and farmers' cooperatives.

When You'd Use It (Late/Amended)

Normal Filing Deadline

For the 2014 tax year, paper Forms 1099-MISC were due to the IRS by March 2, 2015, and recipients should have received their copies by January 31, 2015 (or February 17, 2015, for amounts reported in boxes 8 or 14).

Filing Late

If you missed the deadline, file as soon as possible. The IRS imposes penalties for late filing that increase the longer you wait—$30 per return if filed within 30 days of the deadline, $60 per return if filed between 31 days and August 1, and $100 per return after August 1 or if not filed at all. However, if you can demonstrate ""reasonable cause"" (such as a natural disaster, serious illness, or unavoidable absence), penalties may be waived. IRS

Filing Corrections

Discovered an error after filing? You must correct it as soon as possible. Mark the ""CORRECTED"" box on a new Form 1099-MISC, complete all information fields (not just the corrected ones), and file Copy A with Form 1096 to your IRS Service Center. You must also send corrected statements to recipients. Common errors include wrong taxpayer identification numbers, incorrect payment amounts, or reporting payments in the wrong box. Don't use the ""VOID"" box for corrections—that's only for discarding forms before submission.

Extension Requests

You can request an automatic 30-day extension by filing Form 8809 by the original due date. Under hardship conditions, an additional 30-day extension may be available.

Key Rules for 2014

Several important rules governed Form 1099-MISC reporting for 2014:

• $600 Threshold: Most payment categories required reporting only if they totaled $600 or more during the calendar year. The major exception was royalties and broker payments in lieu of dividends or tax-exempt interest, which had a $10 minimum threshold.
• Trade or Business Only: You only report payments made in the course of operating your trade or business. Personal payments—like paying your neighbor to mow your lawn—aren't reportable. Nonprofit organizations, government agencies, and qualified pension plan trusts are considered engaged in a trade or business for reporting purposes.
• Corporate Exemption (with Exceptions): Generally, payments to corporations don't need to be reported, except for medical and health care payments (Box 6), attorneys' fees (Box 7), gross proceeds paid to attorneys (Box 14), fish purchases for cash (Box 7), substitute payments (Box 8), and federal executive agency payments for services.
• Backup Withholding Requirements: If a recipient fails to provide their taxpayer identification number (TIN) or the IRS notifies you that the TIN is incorrect, you must withhold 28% of reportable payments (backup withholding). Report this withholding in Box 4, and you must file Form 1099-MISC regardless of the payment amount when backup withholding applies.
• Multiple Payment Types: Different types of payments go in specific boxes on the form—using the correct box is critical because the IRS uses this information to verify proper tax reporting. For example, rent goes in Box 1, royalties in Box 2, nonemployee compensation in Box 7, and attorneys' fees in Box 7 or gross proceeds in Box 14.
• Special Attorney Reporting: For 2014, attorneys' fees and gross proceeds paid to attorneys required special attention. Report services rendered by attorneys in Box 7, and payments of $600 or more made to attorneys in connection with legal services (like settlement payments) in Box 14, even if paid to corporations. IRS

Step-by-Step (High Level)

Step 1: Identify Reportable Payments

Throughout the year, track all payments that might require reporting. Review your business checkbook, accounts payable records, and payment systems for amounts paid to non-employees for services, rent, royalties, prizes, and other reportable categories.

Step 2: Collect Recipient Information

Obtain a completed Form W-9 (Request for Taxpayer Identification Number and Certification) from each payee before making payments. This form provides the legal name, TIN (Social Security Number or Employer Identification Number), and address you'll need for accurate reporting.

Step 3: Obtain Official Forms

Order official IRS Forms 1099-MISC and 1096 from the IRS by calling 1-800-TAX-FORM (1-800-829-3676) or download them from IRS.gov. Don't use photocopies—only official red-ink scannable forms or properly formatted substitute forms are acceptable for Copy A sent to the IRS.

Step 4: Complete the Forms

Enter your business information (payer name, address, TIN) and the recipient's information in the designated areas. Report payments in the appropriate boxes: Box 1 for rents, Box 2 for royalties, Box 3 for other income, Box 4 for federal income tax withheld, Box 6 for medical/health care payments, Box 7 for nonemployee compensation, etc. Type entries using black ink in 12-point Courier font if possible, or print legibly in block letters.

Step 5: Distribute Copies

Provide Copy B to each recipient by January 31, 2015 (February 17 for boxes 8 and 14). Keep Copy C for your records. Recipients need this information to complete their tax returns.

Step 6: Submit to IRS

Prepare Form 1096 (Annual Summary and Transmittal) as a cover sheet. Group forms by type (all 1099-MISC together) and complete a separate Form 1096 for each form type. Mail Copy A of all forms along with Form 1096 to your designated IRS Service Center (Austin, TX or Kansas City, MO depending on your location) by March 2, 2015.

Step 7: Retain Records

Keep copies of all filed forms and supporting documentation for at least 3 years from the due date (4 years if backup withholding was imposed or for Form 1099-C).

Common Mistakes and How to Avoid Them

Mistake #1: Missing or Incorrect Taxpayer Identification Numbers

This is the most common error. Always collect Form W-9 from payees before making payments. Verify the TIN format: Social Security Numbers should be XXX-XX-XXXX, and Employer Identification Numbers should be XX-XXXXXXX. Consider using the IRS TIN Matching program to verify accuracy before filing.

Mistake #2: Reporting Payments in Wrong Boxes

Each box serves a specific purpose. Rent belongs in Box 1, not Box 3. Nonemployee compensation goes in Box 7, not Box 3. Independent contractor payments should go in Box 7, while prizes and awards for non-services go in Box 3. Carefully review the instructions for each box to ensure proper classification.

Mistake #3: Combining Multiple Forms with One Form 1096

Don't submit Forms 1099-INT and 1099-MISC together with a single Form 1096. Each form type requires its own separate Form 1096 transmittal. Group all your 1099-MISC forms together with one Form 1096, then separately group other form types.

Mistake #4: Forgetting Dollar-and-Cents Decimals

Always include the decimal point when reporting amounts: 1500.00, not 1500. This seemingly small error causes processing problems and potential penalties.

Mistake #5: Filing for Employees Instead of Independent Contractors

Employees receive Form W-2, not Form 1099-MISC. If you misclassify an employee as an independent contractor, you could face employment tax liabilities. Generally, if you control what work is done and how it's done, the worker is likely an employee.

Mistake #6: Reporting Payments to Corporations

Generally, you don't report payments to corporations unless they fall into specific exceptions: medical/health care services, attorneys' fees, or federal executive agency vendor payments. When in doubt, obtain Form W-9 to confirm entity type.

Mistake #7: Not Filing Because Payee Didn't Request a Form

Your obligation to file exists whether or not the recipient requests the form. If payments meet the threshold and criteria, you must file.

What Happens After You File

IRS Processing

The IRS scans and processes your forms, matching the information against recipients' tax returns. This matching process typically occurs after the April tax filing deadline. The information you report helps the IRS verify that recipients properly reported all their income.

Recipient Obligations

Recipients use the information on Form 1099-MISC to complete their tax returns. Amounts in Box 7 (nonemployee compensation) typically get reported on Schedule C (business income) and may be subject to self-employment tax. Other amounts are reported in corresponding lines of Form 1040 or business tax returns.

Potential IRS Correspondence

If the IRS identifies discrepancies between what you reported and what the recipient reported, both parties may receive notices. ""CP2100"" or ""CP2100A"" notices alert you to incorrect name/TIN combinations, requiring you to solicit correct information and potentially begin backup withholding. Recipients may receive notices if they failed to report income shown on 1099-MISC forms.

State Reporting

Many states require their own information reporting. Check with your state tax department about additional filing requirements, as federal Form 1099-MISC alone may not satisfy state obligations.

Record Retention

Maintain your copies and supporting documentation. The IRS can audit information returns within 3 years of filing (4 years for certain forms or when backup withholding applied). Having complete records protects you during audits.

Penalties for Errors

If errors are discovered, the IRS may assess penalties ranging from $30 to $100 per incorrect return (up to $1.5 million annually), depending on how quickly you correct them. Intentional disregard carries a minimum $250 per return penalty with no maximum.

FAQs

Q1: Do I need to file Form 1099-MISC if I paid someone $599?

No. The threshold for most categories is $600 or more. If you paid exactly $599, you're not required to file. However, if backup withholding applies, you must file regardless of the amount.

Q2: I hired someone for a one-time job and paid them $1,000 in cash. Do I need to report this?

Yes, if the payment was made in the course of your trade or business and the person is not your employee. The payment method (cash, check, or electronic transfer) doesn't matter. Report the payment in Box 7 (nonemployee compensation). Personal payments for work around your home don't require reporting.

Q3: What if a contractor refuses to provide their Social Security Number or Tax ID?

You must backup withhold 28% from their payments and report the withheld amount in Box 4. You still must file Form 1099-MISC even if you don't have their TIN, though you may face a penalty. Continue attempting to obtain their TIN using Form W-9. The contractor may face penalties under section 6723 for failure to provide their TIN.

Q4: Can I e-file Form 1099-MISC?

Yes. If you filed 250 or more information returns of any single type, electronic filing is mandatory. For fewer returns, it's optional but encouraged. You must apply for approval using Form 4419 at least 30 days before filing. The IRS provides free filing through the FIRE (Filing Information Returns Electronically) system.

Q5: I paid my attorney $5,000 for legal services. Which box do I use?

Report attorneys' fees for services in Box 7 (nonemployee compensation). However, if you made payments to an attorney in a legal settlement (gross proceeds), report those in Box 14. Note that the corporate exemption doesn't apply to attorneys—you must report payments to attorney corporations.

Q6: What's the difference between an independent contractor and an employee for 1099-MISC purposes?

Employees receive Form W-2 and have taxes withheld. Independent contractors receive Form 1099-MISC in Box 7 and handle their own tax payments. The key distinction involves control: If you control what work is done and how it's done, the worker is likely an employee. If they control their work methods and operate independently, they're likely a contractor. Misclassification carries serious consequences.

Q7: I filed the form but forgot to send a copy to the recipient. What should I do?

Send the recipient copy (Copy B) immediately. Late recipient statements may result in penalties of $100 per statement (up to $1.5 million annually). If you can show reasonable cause for the delay, penalties may be waived. The recipient deadline for 2014 forms was January 31, 2015 (February 17 for boxes 8 and 14), but sending it late is better than never sending it.

Additional Resources

2014 Form 1099-MISC Instructions
2014 General Instructions for Information Returns
IRS Information Returns Call Site: 1-866-455-7438

This guide provides general information based on IRS publications for the 2014 tax year. For specific situations, consult a tax professional or contact the IRS directly.