What Form 1099-MISC Is For

In 2012, Form 1099-MISC (Miscellaneous Income) served as the primary information return businesses used to report nonemployee compensation and various other types of payments. Specifically, Box 7 of Form 1099-MISC was designated for reporting nonemployee compensation—payments of $600 or more made to independent contractors, freelancers, and other non-employees for services rendered in the course of your trade or business.

According to the 2012 IRS Instructions for Form 1099-MISC, businesses were required to file this form when making payments of at least $600 during the calendar year for services performed by individuals who were not employees. This included professional fees to attorneys, accountants, architects, and contractors; commissions; prizes and awards for services; payments to independent contractors; and fees paid between professionals.

The form served a dual purpose: it helped the IRS track income reported by recipients and ensured that self-employed individuals received proper documentation for their tax returns. The information on Form 1099-MISC told the IRS what income individuals received, which the agency would then match against what those individuals reported on their tax returns.

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

The standard filing deadline for Form 1099-MISC in 2012 was February 28, 2013 for paper filers, or April 1, 2013 if filing electronically. Recipients had to receive their Copy B by January 31, 2013—except for payments reported in boxes 8 (substitute payments) or 14 (gross proceeds to attorneys), which had an extended deadline of February 15, 2013.

Filing Late: If you missed the original deadline, you should file as soon as possible to minimize penalties. The IRS assesses penalties for late filing that increase based on how late the return is submitted. For returns filed 1-30 days late, the penalty was typically $30 per form; 31 days to August 1 resulted in $60 per form; and after August 1 or not filed at all could result in $100 per form, with maximum penalties capped at specific amounts depending on business size.

Filing Amended Returns: If you discovered errors after filing your original Form 1099-MISC, you needed to file a corrected return. According to the IRS general instructions, you would check the "CORRECTED" box at the top of the form and complete it with the correct information. You must file the corrected form with the IRS and furnish a copy to the recipient. Common reasons for corrections included reporting the wrong amount, using an incorrect taxpayer identification number (TIN), or reporting in the wrong box.

Key Rules or Details for 2012

Several critical rules governed Form 1099-MISC reporting in 2012:

The $600 Threshold

You were required to report nonemployee compensation only when payments totaled $600 or more during the calendar year. Payments below this threshold did not require reporting, though they were still taxable to the recipient.

Trade or Business Requirement

Form 1099-MISC reporting applied only to payments made in the course of your trade or business. Personal payments—for example, hiring someone to paint your personal residence—were not reportable. Nonprofit organizations, government agencies, and businesses of all types were subject to these requirements.

Corporate Exemption (with Exceptions)

Generally, payments to corporations did not require Form 1099-MISC reporting. However, important exceptions existed in 2012: payments to corporations for medical and health care services (Box 6), attorneys' fees (Box 7), fish purchases for cash (Box 7), and gross proceeds to attorneys (Box 14) all required reporting regardless of corporate status.

Box 7 Specifics

Nonemployee compensation reported in Box 7 included fees, commissions, prizes and awards for services, payments to independent contractors, professional service fees, fee-splitting arrangements, payments for parts and materials when incidental to services, and oil and gas payments for working interests. The IRS emphasized that amounts in Box 7 were generally subject to self-employment tax.

Backup Withholding

If a payee failed to provide a valid TIN or the IRS notified you of an incorrect TIN, you were required to withhold 28% of the payment as backup withholding and report this amount in Box 4.

Step-by-Step (High Level)

Step 1: Determine Filing Requirement

First, identify whether you made payments of $600 or more to any non-employee for services during 2012 in the course of your trade or business. Review your accounting records, checkbook registers, and payment systems to identify all potential recipients.

Step 2: Gather Information

Collect the necessary information for each recipient: full legal name, complete address, and taxpayer identification number (Social Security Number for individuals or Employer Identification Number for businesses). You should have obtained this information using Form W-9 when you first engaged the contractor. Verify that TINs are complete and accurate to avoid backup withholding requirements and penalties.

Step 3: Calculate Total Payments

For each recipient, calculate the total amount paid during the calendar year 2012. Include all qualifying payments: fees, commissions, reimbursements for which the recipient didn't account to you, and the value of goods exchanged for services.

Step 4: Complete the Form

Using the official 2012 Form 1099-MISC, enter your business information in the payer section and the recipient's information in the appropriate fields. Report nonemployee compensation in Box 7. If you withheld backup withholding, report that amount in Box 4. Complete separate forms for each recipient who received $600 or more.

Step 5: File with the IRS

Send Copy A of all Forms 1099-MISC along with Form 1096 (Annual Summary and Transmittal) to the IRS by the deadline. The IRS encouraged electronic filing, which provided a later deadline (April 1 versus February 28).

Step 6: Provide Recipient Copies

Furnish Copy B to each recipient by January 31, along with any required state copies. Recipients need this information to complete their tax returns accurately.

Common Mistakes and How to Avoid Them

Mistake #1: Incorrect or Missing Taxpayer Identification Numbers

The most frequent error was reporting incorrect TINs or failing to obtain them at all. This triggered IRS notices and backup withholding requirements. Solution: Always request Form W-9 before making the first payment to any contractor. Verify the TIN carefully before filing. The IRS offered a TIN Matching service that allowed businesses to verify names and TINs before filing.

Mistake #2: Reporting in the Wrong Box

Many businesses confused when to use Box 7 (nonemployee compensation) versus Box 3 (other income). The IRS specifically warned that reporting in the correct box was critical because they used this information to determine if recipients properly reported income. Solution: Use Box 7 only for payments subject to self-employment tax for services performed. Use Box 3 for prizes not for services, deceased employee benefits, Indian gaming payments, and termination payments to former insurance salespeople meeting specific criteria.

Mistake #3: Misclassifying Employees as Independent Contractors

Some businesses incorrectly issued Form 1099-MISC to individuals who should have received Form W-2 as employees. This created significant tax compliance issues. Solution: Carefully evaluate the nature of the working relationship using IRS guidelines in Publication 15-A. When in doubt, consider consulting with a tax professional. The degree of control you exercise over how, when, and where work is performed is the key factor.

Mistake #4: Including Personal Payments

Businesses sometimes reported payments made for personal matters rather than trade or business purposes. Solution: Only report payments made in the course of operating your business. Personal transactions—hiring someone to mow your home lawn, for example—are not reportable even if they exceed $600.

Mistake #5: Forgetting Corporate Exception Rules

While payments to corporations generally didn't require reporting, the exceptions frequently tripped up filers. Solution: Create a checklist of the exception categories: medical/healthcare payments, attorneys' fees, fish purchases, and gross proceeds to attorneys all required reporting even when paid to corporations.

What Happens After You File

IRS Matching Program

The IRS uses sophisticated computer systems to match the information you reported on Form 1099-MISC against what recipients reported on their individual tax returns. When discrepancies arise—such as a recipient failing to report income you documented—the IRS generates notices to the taxpayer requesting explanation or additional tax payment.

Recipient Filing Requirements

Recipients who receive Form 1099-MISC with amounts in Box 7 must report this income on their tax returns. Self-employed individuals typically report it on Schedule C (sole proprietors) or Schedule F (farmers) and calculate self-employment tax on Schedule SE. The amounts are subject to both income tax and self-employment tax (Social Security and Medicare), which in 2012 totaled 13.3% for Social Security (due to a temporary reduction) plus 2.9% for Medicare on net self-employment income.

Potential IRS Follow-Up

If you made errors on your Form 1099-MISC or failed to file when required, you might receive IRS notices. Common notices included CP2100/CP2101 for TIN mismatches and penalty notices for late filing. Most issues could be resolved by responding promptly with corrected information or reasonable cause explanations for delays.

Record Retention

You were required to keep copies of all Forms 1099-MISC filed, along with supporting documentation, for at least four years from the filing date. These records might be needed if the IRS questioned your business deductions or if recipients disputed the amounts reported.

FAQs

Q1: What if I paid someone $599—do I need to file Form 1099-MISC?

No. The reporting threshold was $600 or more during the calendar year. Payments under $600 don't require Form 1099-MISC reporting, though they remain taxable income to the recipient. However, if you paid the same person $599 in 2012 and additional amounts in early 2013 that together exceeded $600 for 2013, you would need to file for 2013.

Q2: I paid a corporation $10,000 for consulting services. Do I report this?

Generally, no—payments to corporations were exempt from Form 1099-MISC reporting in 2012. However, if the payment was for legal services, medical services, or fell into another exception category, you would need to report it regardless of corporate status. When in doubt, it's better to file than face penalties for not filing.

Q3: The contractor never gave me a Form W-9. What should I do?

You should have requested Form W-9 before making payment, but if you didn't obtain one, you still must file Form 1099-MISC. Report the payment using whatever information you have. If you lack the TIN, you must begin backup withholding at 28% on future payments. The contractor may face penalties under Section 6723 for failure to provide their TIN, and you must file the form showing "Applied for" in the TIN field.

Q4: I reimbursed a contractor for expenses. Do I include those on Form 1099-MISC?

It depends. If the contractor accounted to you for the expenses with receipts and documentation, you don't include accountable reimbursements. However, if you gave the contractor money for expenses without requiring an accounting, or if you reimbursed them for expenses they claimed without documentation, include the full amount in Box 7. When materials or parts were incidental to the service provided (like parts used in a repair), include the total payment.

Q5: What's the difference between reporting in Box 3 and Box 7?

Box 7 is for nonemployee compensation—payments for services that are subject to self-employment tax. Box 3 is for other income not reportable elsewhere on the form. The IRS examines these boxes differently when matching tax returns. Termination payments to former insurance salespeople meeting specific criteria go in Box 3 (not subject to SE tax), while most service payments go in Box 7 (subject to SE tax). The distinction matters significantly for the recipient's tax liability.

Q6: Can I file Form 1099-MISC electronically?

Yes. In 2012, the IRS encouraged electronic filing and provided a later deadline (April 1, 2013) for electronic filers versus paper filers (February 28, 2013). Electronic filing required software that met IRS specifications outlined in Publication 1220. If you filed 250 or more information returns of any type, electronic filing was mandatory.

Q7: What if I discover an error after filing?

File a corrected Form 1099-MISC as soon as you discover the error. Check the "CORRECTED" box, complete the form with the correct information, and file it with the IRS. You must also provide a corrected copy to the recipient. Common corrections involve wrong amounts, incorrect TINs, or information reported in the wrong box. Filing corrections promptly can help avoid or reduce penalties and prevent problems for recipients.

Sources

2012 Instructions for Form 1099-MISC - IRS.gov
2012 Form 1099-MISC - IRS.gov

Note: Form 1099-NEC, which currently handles nonemployee compensation, did not exist in 2012. It was reintroduced for the 2020 tax year. In 2012, all nonemployee compensation was reported in Box 7 of Form 1099-MISC.