What Form 1099-MISC Is For

Form 1099-MISC is a crucial tax document that businesses use to report various types of payments made during the tax year. Understanding when and how to use this form helps businesses stay compliant with IRS reporting requirements while ensuring recipients receive accurate income information. This guide breaks down everything you need to know about the 2018 version of Form 1099-MISC, using official guidance from the IRS.

Form 1099-MISC serves as an information return that businesses and organizations must file to report certain types of payments totaling $600 or more (or $10 or more for royalties) made during the year. The form captures income that doesn't fit neatly into the employee wages category reported on Form W-2.

You must file Form 1099-MISC when you've paid someone in the course of your trade or business for:

• Rents of $600 or more (office space, equipment rentals, pasture land)
• Services performed by non-employees (independent contractors) totaling $600 or more
• Prizes and awards of $600 or more (game show winnings, sweepstakes)
• Other income payments such as deceased employee wages paid to estates, termination payments to former insurance salespeople, or medical research study participation
• Medical and health care services of $600 or more to physicians and healthcare providers
• Crop insurance proceeds
• Cash payments for fish purchased for resale ($600 or more)
• Fishing boat proceeds
• Attorney fees of $600 or more, or gross proceeds paid to attorneys
• Royalties of $10 or more

Form 1099-MISC also documents direct sales of at least $5,000 of consumer products to a buyer for resale outside a permanent retail establishment, and any payments where you've withheld federal income tax under backup withholding rules, regardless of amount.

Important exceptions: You don't need to file Form 1099-MISC for payments to corporations (with specific exceptions like attorney fees and medical services), employee wages (report on Form W-2), payments for merchandise or shipping, payments to tax-exempt organizations, or scholarship payments. IRS Instructions for Form 1099-MISC (2018)

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

Original Filing Deadlines

The 2018 Form 1099-MISC had different deadlines depending on what you were reporting:

• January 31, 2019: If reporting nonemployee compensation (NEC) in Box 7, whether filing on paper or electronically
• February 28, 2019: For all other payments when filing on paper
• April 1, 2019: For all other payments when filing electronically

You must also furnish Copy B to the recipient by January 31, 2019.

Late or Amended Filing

If you discover errors after filing or missed the original deadline, you need to file a corrected Form 1099-MISC. The IRS recommends keeping corrected filings separate from original submissions to avoid processing confusion.

For paper corrections, refer to the 2018 General Instructions for Certain Information Returns (Part H). For electronic corrections, consult IRS Publication 1220. A critical rule: never check the "VOID" box when filing a correction on paper—doing so causes the IRS scanning equipment to skip your form entirely, meaning your correction won't be recorded. IRS Instructions for Form 1099-MISC (2018)

Key Rules or Details for 2018

Several important rules governed Form 1099-MISC in 2018:

The $600 Threshold

Most payments require reporting only if they total $600 or more during the year. The notable exception is royalties, which have a lower $10 threshold.

Trade or Business Requirement

You only file Form 1099-MISC for payments made in the course of your trade or business. Personal payments don't require reporting, even if they exceed $600. Nonprofit organizations, pension trusts, tax-exempt organizations, farmers' cooperatives, and government agencies all count as being "engaged in a trade or business" for these purposes.

Nonemployee Compensation Box 7 Special Rule

Congress enacted a special law (P.L. 114-113) accelerating the deadline for forms reporting nonemployee compensation to January 31. This earlier deadline aimed to reduce tax refund fraud by giving the IRS more time to match information returns before processing early refund claims.

Attorney Payment Reporting

Payments to attorneys require special attention. You must report attorney fees in Box 7, even if paid to a corporation (the usual corporate exemption doesn't apply). Additionally, if you pay an attorney gross proceeds in connection with legal services but not for the attorney's own services—like settlement payments—you report these in Box 14.

Backup Withholding

If a payee fails to provide a correct Taxpayer Identification Number (TIN), you must withhold 24% of reportable payments and remit it to the IRS. You must file Form 1099-MISC even for payments under $600 when backup withholding applies. IRS Instructions for Form 1099-MISC (2018)

Medical Services Exception

While most corporate payments are exempt from reporting, payments for medical and health care services to corporations—including professional corporations—must be reported. The exception: hospitals, extended care facilities, and government-operated medical facilities don't require reporting.

Step-by-Step (High Level)

Step 1: Determine if You Need to File

Review all payments made during 2018. Ask yourself: Was this payment made in the course of my trade or business? Is the recipient a non-employee? Does the payment exceed the threshold ($600 for most categories, $10 for royalties)?

Step 2: Collect Recipient Information

Before making payments or immediately after, obtain Form W-9 from each payee. This collects their legal name, business name (if applicable), Taxpayer Identification Number (TIN), and address. Proper TINs are crucial—errors trigger backup withholding requirements and potential penalties.

Step 3: Classify the Payment Correctly

Determine which box on Form 1099-MISC applies to your payment. This matters significantly because the IRS uses box information to verify that recipients properly reported their income. Misclassification can create problems for both you and the recipient during tax filing.

Step 4: Complete the Form

Enter your business information as the payer, the recipient's information and TIN, and the payment amount in the appropriate box. If you withheld backup withholding, report it in Box 4. Use a separate form for each recipient.

Step 5: File with the IRS

Submit Form 1099-MISC to the IRS along with Form 1096 (the transmittal form) by the appropriate deadline. The IRS recommends filing forms with nonemployee compensation separately from other Forms 1099-MISC. Remember that you cannot file forms printed from the IRS website for paper filing—you must use official scannable forms ordered from the IRS or approved tax software.

Step 6: Furnish Copies to Recipients

Send Copy B to each recipient by January 31, 2019. Recipients need this information to accurately complete their tax returns. IRS Instructions for Form 1099-MISC (2018)

Common Mistakes and How to Avoid Them

Mistake #1: Reporting Payments in the Wrong Box

The IRS matches information from Forms 1099-MISC with what recipients report on their tax returns. Putting income in the wrong box creates mismatches that can trigger audits or notices. Solution: Carefully review the instructions for each box before entering amounts. When in doubt, consult the specific instructions or a tax professional.

Mistake #2: Filing Late for Nonemployee Compensation

Many filers forget that Box 7 nonemployee compensation has a special January 31 deadline—no extensions allowed. Solution: Flag all Forms 1099-MISC with Box 7 amounts and file them first, separately from other 1099-MISC forms with later deadlines.

Mistake #3: Not Obtaining Correct TINs

Missing or incorrect TINs cause significant problems. You become liable for backup withholding, and both you and the payee may face penalties. Solution: Always request Form W-9 before making the first payment. Verify TIN formats: Social Security Numbers use XXX-XX-XXXX format; Employer Identification Numbers use XX-XXXXXXX format. Consider using the IRS TIN Matching System to verify numbers.

Mistake #4: Applying the Corporate Exception Incorrectly

While most payments to corporations don't require Form 1099-MISC, important exceptions exist—particularly for attorney fees and medical services. Solution: When paying corporations, specifically check whether your payment falls under an exception requiring reporting.

Mistake #5: Checking the VOID Box on Corrections

This is a processing killer. The IRS scanning equipment completely ignores forms with checked VOID boxes. Solution: When filing corrections, prepare a new form marked "CORRECTED" at the top but leave the VOID box unchecked.

Mistake #6: Mixing Personal and Business Payments

Only payments made in the course of trade or business require reporting. Solution: Maintain clear separation between business and personal accounts. If you pay someone for work on your home or personal matters, no Form 1099-MISC is required.

Mistake #7: Not Maintaining Proper Records

You need records showing dates and amounts of payments for audit defense. Solution: Keep copies of all Forms 1099-MISC, Forms W-9, payment records, and receipts for at least three years (longer if IRS rules require extended retention periods). IRS Instructions for Form 1099-MISC (2018)

What Happens After You File

Once you submit Form 1099-MISC to the IRS and furnish copies to recipients, several things occur:

IRS Processing

The IRS enters your information returns into its database. This information feeds into the Automated Underreporter (AUR) system, which matches information returns against what recipients report on their personal tax returns. Discrepancies trigger computer-generated notices.

Recipient Filing

Recipients use your Form 1099-MISC to prepare their tax returns. Amounts from Box 7 (nonemployee compensation) typically appear on Schedule C for self-employed individuals. Other boxes report to different lines depending on income type. Recipients must report this income even if they don't receive a Form 1099-MISC or if the amount falls below reporting thresholds.

Matching Process

The IRS runs sophisticated matching programs throughout the year. If a recipient fails to report income shown on a Form 1099-MISC, the IRS sends a CP2000 notice proposing additional tax, interest, and penalties. Similarly, if you report on Form 1099-MISC but the recipient can't document the payment, both parties may receive inquiries.

Penalty Assessment

If you failed to file timely or accurately, the IRS may assess penalties. The penalty amount depends on how late you file and whether the failure was intentional. Small businesses may qualify for penalty relief if they can demonstrate reasonable cause.

Audit Considerations

Both you and your recipients have higher audit risk if Forms 1099-MISC contain errors, are filed late, or show suspicious patterns. Maintain thorough documentation to support all amounts reported. IRS Instructions for Form 1099-MISC (2018)

FAQs

Q1: Do I need to file Form 1099-MISC for payments made via credit card or PayPal?

No. Payments made through credit cards, debit cards, or third-party payment networks like PayPal are reported by the payment settlement entity on Form 1099-K, not by you on Form 1099-MISC. This prevents duplicate reporting.

Q2: What if I paid someone $599—do I still need to file?

No. The threshold for most payments is $600. If you paid exactly $600 or more, you must file. Payments of $599 or less don't require Form 1099-MISC (except for royalties of $10 or more, or if you withheld backup withholding).

Q3: Can I file Form 1099-MISC that I printed from the IRS website?

No, for paper filing. The IRS scans paper forms using special equipment that requires official red-ink forms. You must order official forms from the IRS or use approved tax software. However, if filing electronically, you can use electronic filing systems or software.

Q4: What happens if I discover an error after filing?

File a corrected Form 1099-MISC as soon as you discover the error. Mark it "CORRECTED" but don't check the VOID box. Send the corrected form to both the IRS and the recipient. The correction replaces your original filing.

Q5: Do I need to file Form 1099-MISC for my employee?

No. Employee wages, salaries, bonuses, and taxable benefits are reported on Form W-2, not Form 1099-MISC. Form 1099-MISC is specifically for non-employee compensation and other types of payments described in the instructions.

Q6: What if the recipient refuses to provide their Social Security Number or TIN?

You must backup withhold 24% from their payments and remit it to the IRS. File Form 1099-MISC showing the gross payment and the backup withholding. The recipient may face penalties for failing to provide their TIN. Keep documentation of your requests for the TIN to demonstrate compliance.

Q7: I'm an independent contractor who received Form 1099-MISC. What do I do with it?

Keep it for your tax records. Use the information to prepare your tax return, typically reporting Box 7 amounts on Schedule C if you're self-employed. Remember that you owe self-employment tax (Social Security and Medicare) on most amounts shown in Box 7, in addition to regular income tax. You may also need to make estimated tax payments quarterly to avoid penalties. IRS Instructions for Form 1099-MISC (2018)

Resources

• 2018 Instructions for Form 1099-MISC
• 2018 General Instructions for Certain Information Returns
• IRS.gov/Form1099MISC

This guide is for informational purposes based on 2018 IRS guidance. Tax laws change frequently. Consult the current IRS instructions or a tax professional for the most up-to-date requirements.