What Form 1099-MISC (2016) Is For
IRS Form 1099-MISC (2016) is an information return used by the Internal Revenue Service to report payments made to independent contractors, landlords, and other nonemployees. It covers income types such as nonemployee compensation, rent, royalties, and other compensation paid during the calendar year. The form ensures all payments reported are correctly matched with the recipient’s tax return, helping both the payer and payment recipient comply with federal income tax laws.
Form 1099-MISC is required when a trade or business pays $600 or more for services or rents, or $10 or more in royalty payments. Federal agencies, partnerships, and corporations must also report certain costs, such as attorney or medical fees. The payer must obtain a valid taxpayer identification number from each recipient and submit accurate amounts paid to the IRS, ensuring income, Medicare taxes, and Social Security contributions are correctly reported for the tax year.
When You’d Use Form 1099-MISC
A business or payer uses IRS Form 1099-MISC (2016) to report payments made to an independent contractor, landlord, or self-employed person who is not an employee. It applies when compensation paid for services or rents during the calendar year reaches at least $600, or when royalty payments total $10 or more. The form ensures that all payments reported are included in the recipient’s tax return, allowing the Internal Revenue Service to verify income and tax liability.
Form 1099-MISC also applies to payments such as attorney fees, medical service payments, and other compensation that fall outside an employer-employee relationship. Payments made through third-party network transactions or a payment card are excluded, as they are reported separately on Form 1099-K. Businesses must accurately file this information return to avoid penalties and ensure each payment recipient pays taxes owed to the federal government.
Key Rules or Details for 2016
For the 2016 tax year, the filing deadline for nonemployee compensation reported in Box 7 was moved to January 31, 2017. This change aligned the IRS submission date with the due date for furnishing copies to recipients, helping the Internal Revenue Service verify payments more efficiently. Rent, prize, and other service payments were due by February 28 for paper filing or March 31 for electronic filing.
Businesses that filed 250 or more information returns were required to file electronically through the IRS FIRE system. Payments to corporations were generally exempt, but certain exceptions applied, including medical expenses, healthcare, and attorney fees. Filers without a valid taxpayer identification number were required to withhold federal income tax under backup withholding rules. All necessary forms required proper reporting of amounts paid, gross royalties, and other forms of compensation.
For complete details on reporting, withholdings, and tax filings, see our guide for Information Returns & Reporting Forms.
Step-by-Step (High Level)
Step 1: Gather Taxpayer Information
The payer must obtain a completed Form W-9 from each payment recipient. This form provides the recipient’s legal name, address, and taxpayer identification number.
Step 2: Determine Who Requires a Form
The payer should review all payments made during the calendar year. Payments to employees should be reported on Form W-2, not Form 1099-MISC. Only report payments made in the course of trade or business, not personal transactions.
Step 3: Complete the Form
Each form must include the payer’s information, the recipient’s details, and the total amounts paid. Payment categories, such as rent, royalties, or nonemployee compensation, must be entered in the corresponding boxes.
Step 4: Send Copies to Recipients and the IRS
Recipients must receive their copies by January 31, 2017. The payer must submit Copy A with the IRS by January 31 if reporting nonemployee compensation, or by February 28 (March 31 if filing electronically) for other payments.
Step 5: Retain Records
Businesses should retain copies of all filed forms, W-9s, and supporting documents for a minimum of three years. This helps resolve discrepancies and respond to IRS inquiries.
Common Mistakes and How to Avoid Them
Errors on Form 1099-MISC can result in penalties, mismatched income records, and correspondence from the IRS. The most frequent mistakes include:
Common business tax problems include:
- Reporting payments in the wrong box: Misplacing payments (e.g., listing rent in the box for services) can cause mismatches between payer and recipient records. Always review box descriptions before entering data.
- Failing to include a valid taxpayer identification number: Missing or incorrect TINs automatically trigger backup withholding and may result in penalties. Verify all information with a completed Form W-9.
- Reporting payments made by credit card or payment networks: These should be reported on Form 1099-K, not Form 1099-MISC. Review payment methods to ensure the proper selection of forms.
- Issuing forms unnecessarily to corporations: Payments to corporations are generally exempt, unless they are related to legal or medical services. Check IRS exceptions before filing.
Reviewing all forms before submission, verifying TINs, and confirming which form applies to each payment type help ensure compliance and prevent costly reporting errors.
What Happens After You File
After filing IRS Form 1099-MISC (2016), the Internal Revenue Service reviews the payments reported and matches them with each recipient’s tax return. If the taxpayer identification number or amounts paid do not match, the IRS may issue a notice for correction. Accurate filing ensures independent contractors, businesses, and payment recipients properly report income, pay taxes, and meet federal income tax requirements for the calendar year.
FAQs
What is IRS Form 1099-MISC (2016) used for?
IRS Form 1099-MISC (2016) is issued by the Internal Revenue Service to report payments made by a business or federal agency to an independent contractor, landlord, or self-employed person. It records nonemployee compensation, rent, royalty payments, and other compensation paid during the calendar year for federal income tax reporting purposes.
Who must file Form 1099-MISC, and when is it due?
Any payer, trade, or business that made payments of $600 or more for services, rents, or other fees during the 2016 tax year must file Form 1099-MISC. Filers must obtain a valid taxpayer identification number using Form W-9 and submit information returns by the next business day after the federal filing deadline.
Are third-party network transactions reported on Form 1099-MISC?
No, payments made through third-party network transactions or a payment card are reported separately on Form 1099-K. The IRS requires this distinction to prevent duplicate payments reported and to ensure the correct tax liability for each payment recipient.
How does Form 1099-MISC affect tax liability for independent contractors?
Payments reported on Form 1099-MISC are added to the independent contractor’s tax return to calculate total income, Social Security, and Medicare taxes. Each self-employed person must pay taxes on compensation paid and other services reported to the Internal Revenue Service.
What is the difference between Form 1099-MISC and Form 1099-NEC?
Form 1099-MISC reports various types of income, such as rent, royalties, and other forms of compensation, while Form 1099-NEC is used exclusively for nonemployee compensation. The IRS processes both forms to ensure that the payments reported are accurate and that each recipient correctly files and pays federal income tax.
For more resources on filing or understanding prior-year IRS forms, visit our Form Summaries and Guides Library or see our IRS assistance guide.
