Form 1099-MISC Miscellaneous Income 2018: A Complete Guide

What Form 1099-MISC Is For

Form 1099-MISC (Miscellaneous Income) is an information return used by businesses and organizations to report various types of payments made throughout the year to individuals and certain entities who are not employees. Think of it as the IRS's way of tracking income that doesn't come from traditional employment wages.

The form serves two main purposes: it informs the IRS about payments you've made to non-employees, and it provides recipients with documentation of income they need to report on their tax returns. For tax year 2018, Form 1099-MISC covered a wide range of payment types including rent, royalties, prizes, medical payments, and most notably, payments to independent contractors (nonemployee compensation).

Businesses must file this form when they've paid $600 or more during the year for services, rents, prizes, or other specified payments. For royalties and broker payments, the threshold is just $10 or more. Personal payments don't require reporting—only payments made in the course of operating a trade or business.

When You’d Use Form 1099-MISC (Including Late and Amended Filings)

Regular Filing Timeline

For most payments reported on Form 1099-MISC, the standard filing deadline with the IRS was February 28, 2019 (for paper filers) or April 1, 2019 (for electronic filers). Recipients must receive their copy (Copy B) by January 31, 2019 for most payment types.

However, 2018 had a critical exception: if you reported nonemployee compensation in Box 7, you had to file the form—whether on paper or electronically—by January 31, 2019. This accelerated deadline was established by the Protecting Americans from Tax Hikes (PATH) Act to combat refund fraud.

Late Filing

If you missed the original deadline, you should still file as soon as possible. The IRS imposes penalties for late filing that increase the longer you wait, but filing late is always better than not filing at all. Penalties can range from $50 to $270 per form depending on how late you file, with different tiers: within 30 days of the due date, by August 1, or after August 1.

Amended/Corrected Returns

If you discover errors after filing—such as incorrect payment amounts, wrong taxpayer identification numbers, or payments reported in the wrong box—you must file a corrected Form 1099-MISC. Mark the "CORRECTED" box at the top of the form, enter the correct information, and submit it to the IRS with a new Form 1096. Don't check the "VOID" box when correcting, as that tells IRS scanners to skip the form entirely. Recipients also need to receive corrected copies showing the accurate information.

Key Rules and Changes for Tax Year 2018

Reporting Thresholds

• $600 or more for: rents, services performed by non-employees, prizes/awards, other income, medical/health care payments, and crop insurance proceeds
• $10 or more for: royalties and broker payments in lieu of dividends or tax-exempt interest
• Any amount if you withheld federal income tax under backup withholding rules

What Must Be Reported

The 2018 form included 18 different boxes for various payment types. The most commonly used boxes were Box 1 (Rents), Box 2 (Royalties), Box 3 (Other Income), Box 6 (Medical and Health Care Payments), Box 7 (Nonemployee Compensation), and Box 14 (Gross Proceeds Paid to an Attorney).

Corporate Exemption

Generally, payments to corporations don't require Form 1099-MISC. However, important exceptions exist: you must report payments to corporations for medical and health care services (Box 6), attorneys' fees (Box 7), and gross proceeds paid to attorneys (Box 14). Additionally, federal executive agencies must report payments to corporate vendors for services.

Special 2018 Considerations

Form 1099-MISC for 2018 still included nonemployee compensation in Box 7. (Note: Starting in 2020, this moved to the new Form 1099-NEC.) The January 31 accelerated deadline for Box 7 filings meant businesses needed to complete their contractor payment reconciliation earlier in the year than for other payment types.

Step-by-Step (High Level)

Step 1: Gather Information Throughout the Year

Collect Form W-9 (Request for Taxpayer Identification Number and Certification) from anyone you plan to pay $600 or more. This provides their legal name, address, taxpayer identification number (TIN), and certifies they're not subject to backup withholding. Do this before making payments to avoid scrambling at year-end.

Step 2: Track All Reportable Payments

Maintain detailed records of payments by recipient and category. Track whether payments go in Box 1 (rent), Box 7 (services), or another box. Accuracy here is critical because the IRS matches the information you report with what recipients claim on their tax returns.

Step 3: Obtain the Correct Forms

Download official forms from IRS.gov or order scannable paper versions from the IRS. You cannot file home-printed versions of Copy A (the IRS copy) because they won't scan properly, though you can print Copy B for recipients.

Step 4: Complete Each Form 1099-MISC

Enter your business information (name, address, TIN) in the payer section and the recipient's information in the designated fields. Report payment amounts in the appropriate boxes. Include any federal income tax withheld in Box 4. Assign account numbers if you have multiple accounts for a recipient. Make sure to use correct TIN formatting: XXX-XX-XXXX for Social Security numbers, XX-XXXXXXX for Employer Identification Numbers.

Step 5: Prepare Form 1096

This transmittal form summarizes all the Forms 1099-MISC you're sending to the IRS. Complete a separate Form 1096 for each type of form (one for all your 1099-MISC forms, another if you're also filing 1099-INT forms, etc.). The form asks for totals and counts of forms filed.

Step 6: File With the IRS

If filing fewer than 250 forms, you can file on paper by mailing Copy A of all Forms 1099-MISC along with Form 1096 to the appropriate IRS Service Center based on your location. If filing 250 or more of any single form type, you must file electronically through the IRS Filing Information Returns Electronically (FIRE) system.

Step 7: Furnish Copies to Recipients

Provide Copy B to each recipient by January 31, 2019 (for most payments) or February 15, 2019 (for certain broker transactions and substitute payments). You can mail, hand-deliver, or in some cases email the forms if recipients consent.

Common Mistakes and How to Avoid Them

Mistake 1: Reporting Payments in the Wrong Box

Different payment types belong in specific boxes, and the IRS uses box placement to verify proper tax treatment. For example, putting nonemployee compensation in Box 3 instead of Box 7 can cause problems because Box 7 payments are subject to self-employment tax while Box 3 may not be. Solution: Carefully review the instructions for each box and consult examples. When in doubt, seek guidance from a tax professional about proper classification.

Mistake 2: Missing or Incorrect Taxpayer Identification Numbers

Incorrect or missing TINs are the most common error and trigger IRS "B" notices requesting corrections. They can also subject you to penalties. Solution: Always collect Form W-9 before making payments. Use the IRS TIN Matching program to verify name-TIN combinations before filing. If a contractor doesn't provide their TIN, you must begin backup withholding at 24% and still file Form 1099-MISC reporting the payment and withholding.

Mistake 3: Failing to File for Nonemployee Compensation (Box 7) by January 31

Missing the accelerated deadline for Box 7 results in higher penalties than missing the later deadlines for other boxes. Solution: Separate your Forms 1099-MISC into two groups—those with Box 7 payments and those without—and prioritize the January 31 filing. The IRS recommended separate submissions for this reason.

Mistake 4: Reporting Payments to Regular Employees

Form 1099-MISC is for non-employees only. Employee wages go on Form W-2, not Form 1099-MISC, even if you call them "contractors." Solution: Correctly determine worker classification using IRS guidelines. Consider factors like who controls the work, who provides tools, whether there's a continuing relationship, and how payment is structured. When in doubt, consult IRS Publication 15-A or seek professional advice.

Mistake 5: Incorrectly Reporting Reimbursements and Expenses

If you reimbursed a contractor for materials or expenses and those reimbursements are included in your total payment, you must report the entire amount including reimbursements. Solution: Report the gross amount paid. The contractor will deduct legitimate business expenses on their Schedule C. However, if sales taxes were imposed on the service provider and you paid them as part of the bill, include those; if taxes were imposed on you as the buyer, don't include them.

Mistake 6: Using the "VOID" Box Incorrectly

Checking the VOID box when you mean to file a correction causes the IRS's scanning equipment to ignore the form completely. Solution: Use the "CORRECTED" box for corrections, and only check "VOID" on forms you've submitted electronically that need to be deleted from the database.

Mistake 7: Missing the Corporate Exemption Exceptions

While most payments to corporations don't require reporting, the medical services and attorney fees exceptions catch many businesses off guard. Solution: Create a checklist of corporate exemption exceptions (medical services, attorney fees, and federal agency vendor payments) and flag these in your accounts payable system.

What Happens After You File

IRS Matching Process

After receiving your Form 1099-MISC, the IRS enters it into their Information Returns Processing (IRP) system. Throughout the year, they match the information you reported with what recipients report on their individual or business tax returns. The IRS cross-references the TIN, recipient name, and payment amounts.

If Everything Matches

When your forms match recipient returns, nothing happens—that's the goal! The process works silently in the background as intended.

If There Are Discrepancies

When the IRS identifies mismatches, they may send notices to either you or the recipient (or both). Common notices include:

• CP2100/CP2100A notices to payers when name-TIN combinations don't match IRS records
• CP2000 notices to recipients proposing additional tax when they underreported income
• Letter 972CG notifying payers of penalties for incorrect or late filings

Responding to IRS Notices

If you receive a CP2100 or CP2100A notice about TIN mismatches, you must solicit corrected TINs from the affected payees within specific timeframes. After the second "B" notice for the same TIN within three years, you must begin backup withholding at 24% on future payments to that payee unless they provide a correct TIN.

Recipient Actions

Recipients use Form 1099-MISC information to complete their tax returns. Independent contractors report Box 7 income on Schedule C (Profit or Loss from Business). Royalty recipients report Box 2 amounts on Schedule E. Other payments may go on different schedules or forms depending on the payment type and recipient's circumstances.

Record Retention

Keep copies of all Forms 1099-MISC you filed, along with supporting documentation like contracts, invoices, and Form W-9s, for at least three years from the filing date. However, keeping records for seven years is recommended as the IRS can go back six years in cases of substantial underreporting.

FAQs

Q1: Do I need to file Form 1099-MISC if I paid someone through PayPal, Venmo, or credit card?

For tax year 2018, if you paid via payment card or third-party payment network (like PayPal for goods and services), the payment processor issues Form 1099-K to the recipient, and you generally don't need to file Form 1099-MISC for that same payment. However, verify that your payment method qualifies—personal PayPal or Venmo payments don't generate 1099-K forms, so you would still need to file Form 1099-MISC if the payment meets reporting thresholds.

Q2: I forgot to get a W-9 from a contractor. What should I do?

Request the Form W-9 immediately. If the contractor refuses or doesn't respond within a reasonable time, you must begin backup withholding at 24% on future payments. You still must file Form 1099-MISC using whatever information you have (name and address at minimum), report the payment amount, show any backup withholding in Box 4, and check the "2nd TIN not." box if applicable. The IRS may impose penalties on you for not obtaining the TIN, but the penalties are generally less severe than not filing at all.

Q3: Can I file Form 1099-MISC electronically even if I have fewer than 250 forms?

Yes! While you're only required to file electronically if you have 250 or more forms of any single type, you can voluntarily file electronically for any number of forms using the IRS FIRE system. Electronic filing reduces errors, provides faster confirmation, and creates automatic electronic records.

Q4: What's the difference between an employee and an independent contractor for Form 1099-MISC purposes?

This is one of the most important distinctions in tax reporting. Employees receive Form W-2 and have taxes withheld from their paychecks. Independent contractors receive Form 1099-MISC (Box 7 for 2018) and pay their own taxes. The IRS looks at behavioral control (who directs the work), financial control (who controls business aspects), and the relationship type. Generally, if you control what, when, where, and how work is done, the worker is likely an employee. If you control only the result and the worker controls the method, they're likely a contractor. Misclassification can result in significant penalties and back taxes.

Q5: I made a small correction to an amount after filing. Do I really need to file a corrected form?

Yes. Even small errors should be corrected because the IRS matching system is automated and will flag discrepancies of any size. If the recipient has already filed their tax return using your incorrect form, they may receive an IRS notice questioning their return. Filing a corrected Form 1099-MISC with the "CORRECTED" box checked protects both you and the recipient from potential IRS follow-up. Send the corrected form as soon as you discover the error.

Q6: Do I need to report payments to LLC contractors?

It depends on the LLC's tax classification. Single-member LLCs disregarded for tax purposes are treated as individuals (requiring Form 1099-MISC). Multi-member LLCs taxed as partnerships also typically require Form 1099-MISC. However, LLCs electing to be taxed as C or S corporations generally fall under the corporate exemption (except for medical services, attorney fees, and the other exceptions mentioned earlier). Always collect Form W-9, which indicates the LLC's tax classification and helps you determine reporting requirements.

Q7: What if the total payments for the year were $599—just under the $600 threshold?

You're not required to file Form 1099-MISC if payments totaled less than $600 (or less than $10 for royalties). However, you must file if you withheld any federal income tax under backup withholding rules, regardless of the payment amount. Some businesses file for all contractors regardless of amount to maintain consistent records, but it's not required by law.

Additional Resources

• IRS Form 1099-MISC Instructions for 2018
• IRS General Instructions for Information Returns 2018
• IRS Form 1099-MISC Main Page

This summary is for informational purposes and based on IRS guidance. Consult with a qualified tax professional for advice specific to your situation.

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