Form 1099-MISC: Miscellaneous Income (Tax Year 2017) – A Complete Guide

Understanding Form 1099-MISC doesn't have to be complicated. This guide breaks down everything you need to know about reporting miscellaneous income for the 2017 tax year in plain English, based on official IRS guidance.

What Form 1099-MISC Is For

Form 1099-MISC is the IRS document used by businesses and individuals to report various types of payments made during the calendar year to people who aren't employees. Think of it as the IRS's way of tracking income that doesn't appear on a regular W-2 paycheck.

Businesses must file Form 1099-MISC when they pay someone $600 or more during the year for services, rent, prizes, or other income as part of their trade or business. The form also applies to smaller amounts in specific situations, such as royalty payments of $10 or more, or backup withholding regardless of amount.

Common situations requiring Form 1099-MISC include: paying independent contractors or freelancers for services ($600+), paying rent for office space or equipment ($600+), awarding prizes or awards ($600+), making royalty payments ($10+), paying attorneys for legal services ($600+), or reporting medical and health care payments ($600+).

The key distinction is that Form 1099-MISC only applies to payments made "in the course of your trade or business." Personal payments—like paying your neighbor to mow your lawn—don't require reporting. However, nonprofit organizations, pension plans, and government agencies are all considered to be engaged in a trade or business and must comply with these requirements. IRS Instructions for Form 1099-MISC

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

Deadlines and Extensions

For 2017, the IRS implemented a crucial timing change that affects many filers. If you're reporting nonemployee compensation in Box 7 (the most common situation for independent contractor payments), you must file Form 1099-MISC by January 31, 2018—whether filing on paper or electronically. This earlier deadline matches the W-2 deadline and was designed to combat tax refund fraud.

For all other types of payments reported on Form 1099-MISC (rent, royalties, prizes, etc.), the regular deadlines apply: February 28, 2018 for paper filing, or April 2, 2018 if filing electronically. IRS General Instructions for Certain Information Returns

Late filing: If you miss the deadline, file as soon as possible to minimize penalties. The IRS assesses tiered penalties based on how late you file, ranging from $50 to $260 per form, with higher penalties for intentional disregard. You can request a 30-day automatic extension by filing Form 8809 before the original due date—no explanation needed. Under certain hardship conditions, you may request an additional 30-day extension.

Amended/Corrected Returns

If you discover an error after filing—whether it's an incorrect amount, wrong taxpayer identification number, or missing information—you must file a corrected Form 1099-MISC. Do not check the "VOID" box when filing paper corrections, as this tells IRS scanning equipment to skip the form entirely. Instead, check the "CORRECTED" box at the top of the form. For electronic corrections, follow Publication 1220 specifications. File corrected returns as soon as you discover the error to avoid or minimize penalties.

Key Rules or Details for 2017

Several important rules governed Form 1099-MISC filing in 2017:

• The $600 threshold: Most payments require reporting only when they total $600 or more during the calendar year. However, royalties require reporting at just $10 or more. Backup withholding must be reported regardless of the payment amount.
• Who gets reported: You must report payments to individuals, partnerships, estates, and in certain cases, corporations. The general rule is that payments to corporations are exempt from reporting, but significant exceptions exist for 2017. You must report payments to corporations for: medical and health care services (Box 6), fish purchases for cash (Box 7), attorneys' fees and gross proceeds (Boxes 7 and 14), substitute payments in lieu of dividends (Box 8), and payments by federal agencies for services (Box 7).
• What doesn't require reporting: Employee wages (use Form W-2 instead), payments for merchandise or goods, military differential pay, payments to tax-exempt organizations, payments made with credit cards (reported on Form 1099-K by the payment processor), and rent paid to real estate agents (though the agent must report rent paid to property owners). IRS Instructions for Form 1099-MISC
• Taxpayer Identification Numbers (TINs) are mandatory: You must obtain and report the recipient's correct TIN—either a Social Security Number (SSN) or Employer Identification Number (EIN). Use Form W-9 to request this information before making payments. If a recipient fails to provide their TIN, you must begin backup withholding at 28% and report the withheld amount in Box 4, even if the payment is below the normal reporting threshold.
• Electronic filing requirement: If you file 250 or more of any single form type (including Form 1099-MISC), you must file electronically using the IRS FIRE System. This threshold applies separately to each form type and includes corrected returns.

Step-by-Step (High Level)

Step 1: Collect Recipient Information (Before Year-End)

Request Form W-9 from everyone you might need to report. This includes their legal name, business name (if applicable), address, and TIN. Maintain these records securely—you'll need them for years to come.

Step 2: Track Payments Throughout the Year

Monitor cumulative payments to each recipient. Once someone approaches the $600 threshold (or $10 for royalties), flag their account for 1099 reporting. Separate different payment types—compensation goes in different boxes than rent or royalties.

Step 3: Determine Which Box to Use

Form 1099-MISC has multiple boxes, each for specific payment types. Box 1 is for rents, Box 2 for royalties, Box 3 for other income and prizes, Box 6 for medical/health care payments, Box 7 for nonemployee compensation (the most common), and Box 14 for gross proceeds paid to attorneys. Reporting in the correct box matters—the IRS uses this to verify proper reporting on recipients' tax returns.

Step 4: Prepare the Forms (By January for Box 7, February/April for Others)

You need three copies minimum: Copy A (red form) goes to the IRS with Form 1096 transmittal, Copy B goes to the recipient for their tax return, and Copy C stays with you for your records. Many businesses also provide Copy 2 for the recipient's state tax return. Enter your information in the payer section (name, address, TIN, contact phone) and the recipient's information accurately. Report gross amounts before any deductions.

Step 5: File with the IRS

Paper filers must send Copy A (on official red-ink scannable forms, not photocopies) with Form 1096 to the appropriate IRS Service Center—Austin, TX or Kansas City, MO depending on your location. Mail flat, not folded. Electronic filers use the IRS FIRE System, which requires registration and following Publication 1220 specifications. IRS General Instructions for Certain Information Returns

Step 6: Provide Copies to Recipients

You must furnish Copy B to recipients by January 31, 2018 for most forms, or February 15, 2018 for Forms 1099-MISC with amounts in Box 8 or 14 only. You can mail them, deliver in person, or provide electronically if the recipient consents.

Common Mistakes and How to Avoid Them

Missing or Incorrect TINs

This is the number one cause of IRS notices. Always verify TINs using Form W-9 before making payments. The IRS offers a TIN Matching service through e-services to pre-validate name/TIN combinations. If you're notified of a TIN mismatch, send a "B Notice" to the recipient requesting corrected information, then begin backup withholding if they don't respond.

Reporting in the Wrong Box

Putting nonemployee compensation in Box 3 instead of Box 7 causes problems because amounts in Box 7 are subject to self-employment tax. Read the box descriptions carefully. When in doubt, consult the specific instructions for each box in the official IRS Form 1099-MISC instructions.

Misclassifying Employees as Independent Contractors

If someone is actually your employee, you should issue Form W-2, not Form 1099-MISC. The IRS looks at factors like behavioral control, financial control, and the relationship between parties. Publication 15-A provides detailed guidance. Misclassification can trigger significant penalties and back taxes.

Filing Late Without Requesting an Extension

If you know you'll be late, file Form 8809 by the original deadline for an automatic 30-day extension. This simple step can significantly reduce penalties. Waiting until after the deadline means you'll pay the maximum late-filing penalties.

Using Photocopies or Printing from IRS.gov for Copy A

The IRS processes paper forms with optical scanning equipment that requires the official red-ink forms. While you can print Copy B (recipient copies) from IRS.gov, Copy A filed with the IRS must be the official scannable version ordered from the IRS or an approved substitute that meets Publication 1179 specifications. Exception: For low-volume forms like 1099-SA and 1099-QA, the IRS allows printing Copy A from online fillable PDFs. IRS General Instructions for Certain Information Returns

Forgetting State Copies

Most states require their own information return copies. Check your state's requirements and file accordingly to avoid state penalties.

Reporting the Wrong Amount for Attorney Payments

For payments to attorneys (Box 7), report only the attorney's fees for services. For gross proceeds paid to attorneys in a settlement (Box 14), report the full settlement amount paid to the attorney, even if some goes to the claimant. The attorney will handle reporting to the claimant. These are distinct reporting requirements that often occur simultaneously.

What Happens After You File

IRS Matching Program

The IRS enters your filed information into their system and matches it against recipients' tax returns. If someone receives a Form 1099-MISC but fails to report that income on their return, the IRS generates an automated notice demanding payment of taxes on the unreported income.

Backup Withholding Notices (CP2100/CP2100A)

If you reported a TIN/name combination that doesn't match IRS records, you'll receive a CP2100 or CP2100A notice, typically 6-12 months after filing. This doesn't necessarily mean you did something wrong—recipients sometimes report under slightly different names (with or without middle initials, maiden vs. married names, etc.). Send a "B Notice" to the affected recipient requesting updated Form W-9 information. If the mismatch continues after proper notification, you must begin backup withholding on future payments.

Penalty Assessments

If your forms contained errors or were late, the IRS may assess penalties. For 2017, penalties ranged from $50 per form (if corrected within 30 days) up to $260 per form (if corrected after August 1), with higher penalties ($530 per form) for intentional disregard. Annual maximum penalties apply ($3,178,500 for intentional disregard). You may be able to reduce or eliminate penalties by showing reasonable cause—circumstances beyond your control that prevented timely, correct filing.

Recipient Follow-Up and Record Retention

Recipients use the information you provided to complete their tax returns. They may contact you with questions or if they believe the form is incorrect. Maintain good records to respond to these inquiries. If a recipient claims your form is wrong, review your records carefully. If you made an error, file a corrected form promptly.

Keep copies of all filed Forms 1099-MISC and supporting documentation for at least 3 years from the filing date (4 years if backup withholding was imposed). You'll need these records if the IRS questions your filing or if recipients request duplicate copies.

FAQs

1. Do I need to report payments to my LLC contractor?

It depends on how the LLC is taxed. If the LLC is taxed as a C or S corporation, you generally don't need to report (except for attorney fees, medical services, or fish purchases). If it's a single-member LLC (treated as a sole proprietorship) or partnership, you must report payments of $600 or more. Check the Form W-9 they provided—it should indicate their tax classification.

2. What if I paid someone $500 in 2017 and $200 in 2018—do I report it?

No. The $600 threshold applies per calendar year. Since neither year reached $600, no reporting is required (assuming no backup withholding). However, track this for 2018—if combined with additional 2018 payments they exceed $600, you'll need to report all 2018 payments.

3. I forgot to file a 1099-MISC by January 31. What should I do?

File immediately, even though it's late. The quicker you file, the lower your penalty. For 2017, if you file within 30 days of the deadline, the penalty is only $50 per form. If you wait beyond August 1, it increases to $260 per form. If you haven't filed yet and need time, file Form 8809 requesting an extension, though it won't excuse penalties for the period already past.

4. Can I give my contractor a 1099-MISC in February if I didn't report nonemployee compensation in Box 7?

Yes. The January 31 deadline applies only when Box 7 (nonemployee compensation) contains an amount. If you're reporting only rent (Box 1), royalties (Box 2), or other income types, you have until February 28 (paper) or April 2 (electronic) to file with the IRS, and January 31 or February 15 (depending on boxes used) to provide recipient copies.

5. The contractor won't give me their Social Security Number. What do I do?

You still must file Form 1099-MISC, but you also must begin backup withholding at 28% on all future payments. Report what you've paid in the appropriate box and "APPLIED FOR" in the TIN field if they've applied for a number but haven't received it yet. The contractor may face a $50 penalty for failure to provide their TIN. You're protected from penalties if you properly requested the TIN and backup withheld when they didn't provide it. IRS Instructions for Form 1099-MISC

6. I'm a small business owner who received a 1099-MISC. Do I need to do anything special?

Yes. Report the income on your tax return—typically Schedule C for sole proprietors. The IRS already has a copy of your 1099-MISC and will match it to your return. Box 7 amounts are subject to self-employment tax in addition to income tax. If you disagree with the amount or believe the form is incorrect, contact the issuer immediately to request a corrected form.

7. Do I need to report reimbursements for expenses I paid for a contractor?

It depends on your agreement. If the contractor bills you for their services plus reimbursement for expenses they incurred (like materials or travel), you generally report the total amount paid, including reimbursements. If you directly paid vendors on behalf of the contractor (you paid the material supplier directly), those amounts might not be reportable as part of the contractor's compensation. However, if you're unsure, err on the side of reporting—the contractor can document their business expenses on their tax return.

Additional Resources

Form 1099-MISC (2017 version)
Instructions for Form 1099-MISC (2017)
General Instructions for Certain Information Returns (2017)

This guide is based on official IRS publications and is current for tax year 2017. Tax laws change regularly, so consult current IRS guidance or a tax professional for more recent tax years.

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