Form 1099-MISC is one of the most commonly used tax forms for reporting various types of payments made during the course of business operations. If you've hired independent contractors, paid rent, distributed royalties, or made other qualifying payments totaling $600 or more during 2016, you'll likely need to file this form. This guide breaks down everything you need to know in plain language.

What the Form Is For

Form 1099-MISC (Miscellaneous Income) is an information return used by businesses, nonprofits, and government agencies to report payments made to individuals and certain entities during the tax year. The form serves two purposes: it informs the IRS about these payments and provides recipients with documentation they need to report income on their tax returns.

You must file Form 1099-MISC when you've paid at least $10 in royalties or broker payments, or at least $600 in various categories including rents, services performed by non-employees, prizes and awards, medical and health care payments, or crop insurance proceeds. The form also reports payments to attorneys, cash payments for fish purchases, and direct sales of $5,000 or more of consumer products for resale.

The key distinction is that Form 1099-MISC reports payments to non-employees only. Employee wages are reported on Form W-2 instead. The most common use of Form 1099-MISC is reporting payments to independent contractors for services (Box 7: Nonemployee Compensation).

Important exceptions include payments to most corporations, personal payments not made in the course of business, scholarships, and payments made with credit cards (which are reported on Form 1099-K instead).

When You’d Use It (Late and Amended Forms)

Regular Filing Deadlines

The 2016 tax year introduced a significant change to filing deadlines. If you're reporting nonemployee compensation in Box 7, you must file Form 1099-MISC with the IRS by January 31, 2017, regardless of whether you file on paper or electronically.
For all other types of payments:

• February 28, 2017 (paper filing)
• March 31, 2017 (electronic filing)

You must furnish Copy B to recipients by January 31, 2017 for most payments. However, if you're only reporting amounts in Box 8 (substitute payments) or Box 14 (gross proceeds paid to attorneys), the recipient deadline extends to February 15, 2017.

Amended or Corrected Forms

If you discover errors after filing, you must file corrected returns as soon as possible.
Use the "CORRECTED" checkbox on a new Form 1099-MISC and follow the procedures outlined in the General Instructions for Certain Information Returns (Part H) for paper corrections or Publication 1220 for electronic corrections.
Do not check the “VOID” box when filing corrections—that tells IRS scanning equipment to ignore the form entirely.

Late Filing

If you miss the deadline, file as soon as possible to minimize penalties. You may request a 30-day automatic extension using Form 8809, which must be submitted by the original due date. Under certain hardship conditions, you may apply for an additional 30-day extension.

Key Rules for 2016

Reporting Thresholds

• $600 minimum for rents, services, prizes, other income, medical payments, and most other categories
• $10 minimum for royalties and broker payments
• $5,000 minimum for direct sales of consumer products for resale

Who Gets Reported

You must report payments to individuals, partnerships, estates, and certain corporations.
Generally, payments to regular corporations are exempt, except for:

• Medical and health care payments
• Attorneys' fees and gross proceeds
• Fish purchases for cash
• Substitute payments
• Payments by federal executive agencies

Trade or Business Requirement

Report only payments made in the course of your trade or business.
Nonprofit organizations, pension plan trusts, farmers' cooperatives, and government agencies are all considered engaged in a trade or business for reporting purposes. Personal payments don't require reporting.

Taxpayer Identification Numbers (TINs)

You must obtain the recipient's correct TIN (Social Security Number or Employer Identification Number).
Use Form W-9 to collect this information. If a recipient refuses to provide a TIN, you may be required to backup withhold at 24% and report that withholding in Box 4.

New 2016 Changes

• Accelerated filing deadline (January 31) for nonemployee compensation (Box 7)
• New exceptions for wrongful incarceration and disability benefits for public safety officers
• Safe harbor rules for de minimis dollar amount errors

Attorney Payments

Special rules apply to attorneys:

• Report attorneys' fees of $600 or more in Box 7
• Report gross proceeds of $600 or more paid to attorneys in Box 14, even if the attorney isn't your service provider (e.g., settlement payments)

Step-by-Step Filing Process (High Level)

Step 1: Determine Your Obligation

Review all payments made during 2016 to individuals and entities. Identify which payments meet the $10 or $600 thresholds and don't fall under exceptions.
Remember: only payments made in the course of your trade or business qualify.

Step 2: Collect Information

Gather required information for each recipient: complete name, address, and TIN.
Use Form W-9 to collect this information before making payments when possible. Verify that you have correct TINs—incorrect TINs can result in penalties.

Step 3: Complete the Form

For each recipient requiring a 1099-MISC, complete a separate form showing:

• Your business information (payer)
• Recipient’s name, address, and TIN
• Payment amounts in the appropriate boxes (1–18)
• Any backup withholding in Box 4

Be sure to report payments in the correct box—the IRS uses this to verify reporting accuracy.

Step 4: Decide Filing Method

If you're filing 250 or more of any single type of form, you must file electronically through the IRS FIRE System (Filing Information Returns Electronically).
Otherwise, you may file on paper.
Electronic filing extends your deadline to March 31, except for Box 7 (January 31 deadline still applies).

Step 5: Submit to the IRS

• Paper filers: Send Copy A of all forms with a completed Form 1096 (transmittal) to the appropriate IRS Service Center (Austin, TX or Kansas City, MO). Do not fold forms; send First-Class Mail.
• Electronic filers: Submit through the FIRE System following Publication 1220 specifications.

Step 6: Furnish Recipient Copies

Provide Copy B to each recipient by January 31, 2017 (or February 15 if only reporting Box 8 or 14 amounts). You may furnish statements electronically if the recipient consents.

Common Mistakes and How to Avoid Them

Missing or Incorrect TINs

Always request Form W-9 from recipients before making payments. Use the IRS TIN Matching System to verify accuracy.
Incorrect TINs are never considered “inconsequential errors” and can result in penalties.

Wrong Payment Box

Putting amounts in the wrong box causes IRS matching issues. For example, reporting independent contractor payments in Box 3 instead of Box 7 leads to self-employment tax mismatches. Review box definitions carefully.

Reporting Payments to Corporations

Many filers incorrectly assume all corporate payments are exempt. Remember: medical services, attorney fees, fish purchases, and substitute payments must still be reported.

Missing the Accelerated Deadline

The January 31 deadline for Box 7 (nonemployee compensation) is strict. Missing it results in immediate penalties. Mark this date clearly in your compliance calendar.

Not Checking the VOID Box Correctly

Never check “VOID” when filing a correction—use “CORRECTED” instead. The VOID box is only for forms you decided not to file.

Forgetting to File Form 1096

Paper filers must include Form 1096 as a transmittal. Group all Forms 1099-MISC together and submit with a single Form 1096. Missing this can cause rejection.

Including Payments That Don’t Qualify

Common exclusions:

• Employee wages (Form W-2)
• Credit card payments (Form 1099-K)
• Payments under reporting thresholds
• Payments to most corporations

Not Keeping Records

Maintain copies of all filed forms or ensure the ability to reconstruct data for at least 3 years. If backup withholding was involved, retain for 4 years.

What Happens After You File

IRS Processing

The IRS processes Form 1099-MISC returns and matches them against recipients' tax returns. This helps identify underreported income. Processing continues throughout the year following filing.

Recipient Obligations

Recipients use Form 1099-MISC to complete their tax returns.

• Box 7 amounts: Reported on Schedule C (business income) and subject to self-employment tax.
• Other boxes: Routed to various lines or schedules on Form 1040.

CP2100 Notices

If you’ve reported incorrect TINs, you’ll receive a CP2100 or CP2100A notice from the IRS 4–6 months after filing. You must begin backup withholding on future payments until the payee provides a correct TIN.

Penalty Assessments

If you file late, file with errors, or fail to file, the IRS will assess penalties. Notices will explain the penalty amount and your rights to appeal. Penalties depend on timing and number of affected returns.

Reasonable Cause Relief

If you can demonstrate reasonable cause (e.g., natural disasters, unavoidable circumstances), you may request penalty abatement. Include a written explanation and documentation.

No Response Needed

If you filed accurately and on time, you typically won’t hear from the IRS. Retain your copies as proof of compliance.

FAQs

1. Do I need to issue a 1099-MISC to someone I paid via credit card?

No. Payments via credit/debit card or third-party platforms (like PayPal) are reported on Form 1099-K by the payment processor—not you.

2. I paid an LLC for services. Do I need to file Form 1099-MISC?

It depends on how the LLC is taxed.

• Sole proprietorship or partnership → Yes
• C corporation or S corporation → No, except for attorney fees and certain exceptions.
  Request a Form W-9 to confirm classification.

3. What if I discover an error after the deadline?

File a corrected Form 1099-MISC promptly. Check the “CORRECTED” box, enter correct information, and send a copy to the recipient. The earlier you correct, the lower the penalty.

4. Can I file Form 1099-MISC electronically even if I have fewer than 250 forms?

Yes. You may file electronically regardless of volume. Benefits include extended deadlines, confirmation receipts, and reduced errors.

5. What happens if someone refuses to provide their Social Security Number?

Begin backup withholding at 24% and report withheld amounts in Box 4. Still file Form 1099-MISC showing the gross amount and withholding. The payee may face IRS penalties for noncompliance.

6. Do I need to report reimbursements to independent contractors?

Generally, no. Reimbursements under an accountable plan aren’t reportable. However, flat-fee payments that include expenses must be reported in Box 7 in full.

7. I'm a small business—do different penalty rules apply to me?

Yes. Small businesses (average annual gross receipts ≤ $5M) have reduced maximum penalty caps but the same per-return penalties. Filing promptly still minimizes exposure.

Sources

All information in this guide comes from official IRS publications:

• 2016 Instructions for Form 1099-MISC
• 2016 General Instructions for Certain Information Returns
• Form 1099-MISC (2016)