Form 1099-MISC Miscellaneous Income (2021): Complete Guide
What Form 1099-MISC Is For
Form 1099-MISC (Miscellaneous Information) is an IRS tax form that businesses use to report certain types of payments made during the year to people who aren't employees. Think of it as the business equivalent of your W-2, but for non-employees and specific types of income.
For the 2021 tax year, Form 1099-MISC underwent an important change—nonemployee compensation (what you'd pay to contractors and freelancers) was moved to a separate form called 1099-NEC. This means Form 1099-MISC now focuses on reporting other types of miscellaneous payments.
Who needs to file it? If you're a business, nonprofit organization, government agency, or anyone making payments "in the course of your trade or business," you must file Form 1099-MISC when you pay someone $600 or more (or $10 or more for royalties) for specific types of income during the calendar year.
What payments does it cover for 2021? Form 1099-MISC reports payments like rent ($600+), royalties ($10+), prizes and awards ($600+), medical and health care payments ($600+), crop insurance proceeds ($600+), gross proceeds paid to attorneys ($600+), fishing boat proceeds, and certain other miscellaneous income. Personal payments you make outside of your business don't need to be reported.
Source: IRS.gov
When You’d Use Form 1099-MISC (Including Late and Amended Filings)
Standard filing deadlines for 2021
For the 2021 tax year, businesses had different deadlines depending on how they filed. If you filed paper copies with the IRS, the deadline was February 28, 2022. If you filed electronically, you had until March 31, 2022. You were required to provide copies to recipients (the people or businesses you paid) by January 31, 2022.
Filing late
Life happens, and sometimes you miss deadlines. If you filed late, the IRS assesses penalties based on how late you were. The penalty structure for 2021 forms worked like this: if you filed up to 30 days late, the penalty was $50 per form; 31 days late through August 1 cost $110 per form; and filing after August 1 or not filing at all resulted in a $280 penalty per form. For intentional disregard of filing requirements, penalties jumped to $560 per form with no maximum limit.
Filing corrections (amended returns)
Discovered an error after filing? You can file a corrected Form 1099-MISC. For paper corrections, complete a new form with the correct information and check the "CORRECTED" box at the top—never check the "VOID" box, as that tells IRS scanners to ignore the form entirely. For electronic corrections, use the IRS FIRE system or Publication 1220 as your guide. You should correct forms as soon as you discover errors to minimize potential penalties.
Extensions
If you needed more time to file, you could request an extension using Form 8809 (Application for Extension of Time to File Information Returns). This gave you an additional 30 days to file with the IRS. For recipient statements, you could request extensions via fax using specific IRS procedures.
Source: IRS.gov
Key Rules or Details for 2021
The $600 and $10 thresholds: Most payments reported on Form 1099-MISC required a $600 minimum threshold during the year. However, royalty payments and broker payments in lieu of dividends or tax-exempt interest only needed to reach $10. These are cumulative amounts for the entire year—if you paid someone $300 in June and $300 in November, that's $600 total and requires reporting.
Corporation exemptions (with important exceptions: Generally, you don't need to issue 1099-MISC forms to corporations. However, this exemption doesn't apply to four specific payment types: medical and health care payments, attorneys' fees and gross proceeds paid to attorneys, cash payments for fish purchases for resale, and substitute payments in lieu of dividends or tax-exempt interest. This means if you paid a medical corporation or law firm, you still needed to file Form 1099-MISC.
Backup withholding requirements: If someone you paid didn't provide a valid Taxpayer Identification Number (TIN) or the IRS notified you that the TIN was incorrect, you were required to withhold 24% of the payment for backup withholding and report it in Box 4 of Form 1099-MISC. This applies regardless of the payment amount once backup withholding is triggered.
Electronic filing requirements: For the 2021 tax year (filed in 2022), if you filed 250 or more information returns of any type, you were required to file electronically. This threshold has since been lowered to 10 returns for later years, but for 2021, the 250-return threshold applied.
What doesn't get reported: Several payment types don't require Form 1099-MISC: payments for merchandise or similar items, wages paid to employees (use Form W-2), payments to tax-exempt organizations, payments made with credit or payment cards (reported on Form 1099-K instead), and scholarships that don't require services in return.
Recipient statements: You weren't just filing with the IRS—you also needed to provide copies of Form 1099-MISC to the recipients themselves by January 31, 2022. Recipients use these forms to prepare their own tax returns.
Source: IRS.gov
Step-by-Step (High Level)
Step 1: Gather your information throughout the year
Don't wait until January to start preparing. Throughout 2021, you should have collected Form W-9 (Request for Taxpayer Identification Number and Certification) from anyone you might need to report. This form provides their legal name, address, and TIN (Social Security Number or Employer Identification Number). Missing or incorrect TINs create problems later.
Step 2: Identify which payments require reporting
At year-end, review all payments made during 2021. Identify payments of $600 or more (or $10+ for royalties) that fall into Form 1099-MISC categories: rents, prizes and awards, other income, fishing boat proceeds, medical and health care payments, crop insurance proceeds, attorney gross proceeds, or deferred compensation items. Remember to exclude payments already covered by other forms (like W-2 for employees or 1099-NEC for nonemployee compensation).
Step 3: Obtain official forms or use approved software
You can order scannable paper forms from the IRS (only Copy A can be scanned—downloaded copies won't work for paper filing), or use IRS-approved tax software that can generate and electronically file the forms. Many accounting software programs include 1099 preparation features.
Step 4: Complete the forms accurately
For each recipient, fill out a separate Form 1099-MISC including your business information (name, address, TIN), the recipient's information (name, address, TIN), and the payment amount(s) in the appropriate box(es). Box 1 is for rents, Box 2 for royalties, Box 3 for other income, and so on. Enter any backup withholding in Box 4. Use account numbers if you have multiple accounts for the same recipient.
Step 5: File with the IRS
Submit Copy A to the IRS along with Form 1096 (Annual Summary and Transmittal of U.S. Information Returns), which acts as a cover sheet summarizing all your 1099-MISC forms. Paper filers sent these to the appropriate IRS address by February 28, 2022. Electronic filers submitted through the IRS FIRE system by March 31, 2022.
Step 6: Provide copies to recipients
Send Copy B to each recipient by January 31, 2022. This can be paper or electronic (with the recipient's consent). Recipients need these forms to accurately report the income on their tax returns.
Step 7: Keep copies for your records
Retain Copy C (or equivalent records) for at least three years in case of IRS questions or audits.
Source: IRS.gov
Common Mistakes and How to Avoid Them
Mistake #1: Using the wrong form after the 2020 split
For 2021 (and later years), nonemployee compensation moved to Form 1099-NEC. Many businesses accidentally reported contractor payments on Form 1099-MISC instead of 1099-NEC. How to avoid: Remember that payments for services performed by non-employees (contractors, freelancers, independent workers) go on Form 1099-NEC, while Form 1099-MISC handles rents, royalties, prizes, and other specific payment types.
Mistake #2: Incorrect or missing Taxpayer Identification Numbers
Missing, incorrect, or mismatched TINs are the most common filing errors and trigger penalty notices from the IRS. How to avoid: Collect Form W-9 from payees before you pay them, not at year-end. Verify the information matches your records. Consider using the IRS TIN Matching program to verify TINs before filing.
Mistake #3: Putting the payment in the wrong box
Each box on Form 1099-MISC has a specific purpose, and the IRS uses box numbers to determine if recipients properly reported income. Putting rent in Box 3 instead of Box 1 creates mismatches. How to avoid: Review the instructions carefully for each box. When in doubt, Box 3 (Other Income) is the catch-all for miscellaneous payments that don't fit elsewhere, but use specific boxes when available.
Mistake #4: Not filing for payments to corporations
While most corporate payments are exempt, medical payments, attorney payments, fish purchases, and substitute payments to corporations still require Form 1099-MISC. How to avoid: Don't automatically skip corporations—check if your payment type falls under the mandatory reporting exceptions.
Mistake #5: Missing filing deadlines
Late filing triggers automatic penalties that increase the longer you wait. How to avoid: Mark your calendar for the January 31 recipient deadline and the February 28 (paper) or March 31 (electronic) IRS deadlines. Start preparing in early January. If you need more time, request an extension using Form 8809 before the deadline.
Mistake #6: Failing to backup withhold when required
If a payee doesn't provide a TIN or you receive IRS notification of an incorrect TIN, you must withhold 24% from future payments. How to avoid: Act immediately when you cannot obtain a TIN or receive IRS notification. Withhold from the next payment and report in Box 4.
Mistake #7: Not keeping adequate records
The IRS may question your returns years later, and you'll need documentation. How to avoid: Keep copies of all Forms W-9, Forms 1099-MISC, payment records, and correspondence for at least three years (four years is safer).
Source: IRS.gov
What Happens After You File
IRS processing
After you file, the IRS processes your Forms 1099-MISC and matches them against recipients' tax returns. This matching process happens throughout the year and can continue for several years. The IRS uses sophisticated computer systems to identify discrepancies between what you reported and what recipients claimed on their tax returns.
Recipient responsibilities
The people and businesses you paid use the 1099-MISC forms you provided to report income on their tax returns. For most recipients, amounts from Box 1 (rents) appear on Schedule E (Supplemental Income and Loss), while Box 3 (other income) typically goes on Schedule 1, Line 8z of Form 1040. Royalties from Box 2 go on Schedule E for most individuals. Recipients have to pay taxes on this income, and self-employed recipients may also owe self-employment tax on applicable amounts.
If errors are discovered
If the IRS finds mismatches or errors, they'll send notices to you and/or the recipient. You might receive a CP2100 or CP2100A notice informing you of missing or incorrect TINs. These notices don't assess penalties immediately but warn you to correct the information. Recipients might receive notices (like CP2000) showing unreported income based on your Forms 1099-MISC.
Penalty assessments
If you failed to file, filed late, or filed with incorrect information, the IRS will send you a penalty notice (typically Letter 972CG). These penalties are assessed per form with different amounts based on how late you filed. For 2021 forms, penalties ranged from $50 to $280 per form depending on lateness, with no maximum for intentional disregard. Interest accrues on unpaid penalties monthly until paid in full.
Penalty relief
You can request penalty relief if you have reasonable cause—meaning you acted responsibly and the failure resulted from circumstances beyond your control. Examples include serious illness, natural disasters, fire or casualty, death of a responsible person, or unavoidable system failures. Submit your request in writing within 45 days of receiving the penalty notice (60 days for foreign filers), explaining the circumstances and providing documentation.
Audits and examinations
While most returns process without issue, the IRS may select your business for examination if they find patterns of errors or inconsistencies. During an audit, the IRS examines your records to verify that you correctly reported all required payments and obtained proper TINs. Maintaining thorough records protects you during this process.
Source: IRS.gov
FAQs
1. Do I need to file Form 1099-MISC for payments to my contractor?
No. Starting with the 2020 tax year, nonemployee compensation (payments to independent contractors for services) moved to Form 1099-NEC. Use Form 1099-MISC only for the specific payment types listed: rents, royalties, prizes and awards, medical payments, crop insurance proceeds, attorney gross proceeds, fishing boat proceeds, and certain deferred compensation.
2. What's the difference between Box 3 (Other Income) on Form 1099-MISC and Box 1 (Nonemployee Compensation) on Form 1099-NEC?
Box 1 on Form 1099-NEC reports payments for services performed by non-employees and is typically subject to self-employment tax. Box 3 on Form 1099-MISC reports other types of income not related to services, such as prizes, awards, deceased employee wages paid to estates, termination payments to former insurance salespeople, and medical research study payments. The distinction matters because it affects how recipients report and pay taxes on the income.
3. I paid rent to a property management company. Do I report the rent payment to them or to the actual property owner?
Report the payment to whoever you actually paid—the property management company. However, the property management company then has a responsibility to file Form 1099-MISC to report the rent they paid over to the property owner. You're only responsible for reporting your direct payment relationship.
4. Can I e-file Form 1099-MISC for free?
Yes. The IRS offers the Information Returns Intake System (IRIS), which allows businesses to electronically file certain information returns, including Form 1099-MISC, at no cost. Many tax software programs also offer 1099 filing, though some charge fees. For 2021 returns filed in 2022, businesses with 250 or more information returns were required to file electronically.
5. I made a $700 payment to a corporation for office supplies. Do I need to file Form 1099-MISC?
No. Payments for merchandise (like office supplies, equipment, or goods) are not reportable on Form 1099-MISC, even if they exceed $600. Additionally, most payments to corporations are exempt from 1099-MISC reporting, except for the four specific categories: medical/health care payments, attorney fees and gross proceeds, fish purchases for resale, and substitute payments in lieu of dividends or interest.
6. What if the person I paid refuses to provide their Social Security Number or Tax ID?
If someone refuses to provide their TIN or you're unable to obtain it, you must begin backup withholding at 24% from their payments and deposit the withheld amount with the IRS. Report the backup withholding in Box 4 of Form 1099-MISC. The payee may also face penalties under IRC Section 6723 for failing to provide their TIN. You must still attempt to file Form 1099-MISC even without a TIN, leaving that field blank, though this may result in IRS notices.
7. I discovered an error on a Form 1099-MISC I already sent to the IRS and the recipient. What should I do?
File a corrected Form 1099-MISC as soon as possible. Complete a new form with the correct information, check the "CORRECTED" box at the top, and submit it to the IRS. Also send a corrected copy to the recipient. Do not check the "VOID" box—that's only used internally and tells IRS scanners to ignore the form completely. The sooner you file the correction, the better chance you have of avoiding or reducing penalties. If you're correcting within 30 days of the original deadline, penalties are significantly lower than corrections made later.
