What the Form Is For

For the 2015 tax year, businesses used Form 1099-MISC (Box 7) to report nonemployee compensation paid to independent contractors, freelancers, and other non-employees. This was the IRS's primary tool for tracking income paid to individuals and businesses for services performed outside of traditional employment relationships.

When you paid someone $600 or more during the year for services—and that person wasn't your employee—you were generally required to report those payments in Box 7 (Nonemployee Compensation) of Form 1099-MISC. This included payments to independent contractors like consultants, lawyers, accountants, graphic designers, repair technicians, and anyone else who performed work for your business but didn't receive a W-2 wage statement.

The form served multiple purposes: it helped the IRS track income that recipients needed to report on their tax returns, ensured proper collection of self-employment taxes, and created a paper trail for business deductions. Unlike employees who receive W-2s with taxes already withheld, independent contractors are responsible for paying their own income and self-employment taxes—making accurate 1099-MISC reporting essential for tax compliance on both sides of the transaction.

When You’d Use It (Including Late and Amended Filings)

Regular Filing

For the 2015 tax year, businesses were required to furnish Copy B to recipients by February 1, 2016, and file Copy A with the IRS by February 29, 2016 (for paper filers) or March 31, 2016 (for electronic filers). These deadlines applied regardless of which box you used on the form.

Late Filing

If you missed the February/March deadline, you should still file the form as soon as possible to minimize penalties. The IRS assesses penalties based on how late you file: $50 per form if filed within 30 days of the deadline, $110 per form if filed between 30 days and August 1, and $280 per form (up to $1,128,500 per year for larger businesses) if filed after August 1 or not at all. Small businesses with average annual gross receipts of $5 million or less faced lower maximum penalties.

Amended or Corrected Returns

If you discovered an error after filing—such as an incorrect payment amount, wrong taxpayer identification number (TIN), or missing information—you needed to file a corrected Form 1099-MISC. To do this, you'd check the "CORRECTED" box at the top of the form, enter the correct information, and file it with the IRS along with a new Form 1096 (the transmittal form). Importantly, you should not check the "VOID" box when making a correction, as that tells IRS scanning equipment to ignore the form entirely. You'd also furnish a corrected copy to the recipient showing the accurate information.

Key Rules or Details for 2015

The $600 Threshold

You only needed to file Form 1099-MISC if you paid $600 or more in nonemployee compensation during the calendar year. Payments under $600 didn't require reporting (unless you withheld backup withholding from any payment amount).

Trade or Business Requirement

You only reported payments made "in the course of your trade or business." Personal payments—like hiring someone to mow your home lawn—weren't reportable. However, nonprofit organizations, government agencies, and tax-exempt entities were considered to be engaged in a trade or business for reporting purposes.

Who You Reported

Box 7 reporting applied to payments made to individuals, partnerships, estates, and in some cases, limited liability companies (LLCs). Generally, payments to C-corporations and S-corporations were exempt from reporting, with important exceptions: payments to corporations for legal services (attorney fees) always required reporting, as did payments for medical and health care services.

What Counted as Nonemployee Compensation

Reportable payments included professional fees (attorneys, accountants, consultants), commissions to non-employee salespeople, fees paid between professionals (referral fees, fee-splitting arrangements), prizes and awards for services performed, payments for parts and materials when supplying them was incidental to the service, and cash payments for fish purchases. Oil and gas payments for working interests also went in Box 7, whether or not services were performed.

Backup Withholding

If a contractor failed to provide a valid TIN or the IRS notified you that the TIN was incorrect, you were required to withhold 28% from payments and remit it to the IRS. You'd report both the gross payment in Box 7 and the amount withheld in Box 4.

Step-by-Step (High Level)

Step 1: Collect Information Throughout the Year

At the start of each business relationship, you should have requested Form W-9 (Request for Taxpayer Identification Number and Certification) from each contractor. This form provided their legal name, business name (if applicable), address, and TIN (Social Security Number or Employer Identification Number). Keeping accurate records of all payments throughout the year made year-end reporting much easier.

Step 2: Determine Who Needs a 1099-MISC

In late January, you'd review your payment records to identify everyone who received $600 or more in nonemployee compensation. You'd exclude employees (they get W-2s), payments to corporations (except for legal and medical services), payments for merchandise, and amounts already reported on other forms.

Step 3: Obtain the Proper Forms

You needed official IRS forms because Copy A contained scannable elements that couldn't be replicated by printing from a website. You could order forms from the IRS by calling 1-800-TAX-FORM or through the IRS website, or purchase compatible forms from office supply stores. Many businesses also used accounting software or payroll services that generated compliant forms.

Step 4: Complete Each Form

For each recipient, you'd fill out Form 1099-MISC with your business information (payer), the recipient's information, and the payment amount in Box 7. You'd need to prepare multiple copies: Copy A (filed with the IRS), Copy 1 (filed with state tax department if your state required it), Copy B (furnished to the recipient for their federal return), Copy 2 (furnished to the recipient for their state return), and Copy C (kept for your records).

Step 5: Prepare Form 1096

This was the transmittal form that accompanied all your 1099-MISC forms when filing with the IRS. It summarized the total number of forms and the total dollar amounts reported.

Step 6: File and Furnish on Time

Mail Copy A and Form 1096 to the appropriate IRS service center by February 29, 2016 (or file electronically by March 31, 2016). Furnish copies to recipients by February 1, 2016. If you filed 250 or more forms, electronic filing was mandatory.

Common Mistakes and How to Avoid Them

Mistake #1: Missing or Incorrect TINs

Filing forms with missing, incomplete, or incorrect Social Security Numbers or EINs was the most common error. This triggered IRS matching problems and potential penalties. Solution: Always collect Form W-9 before paying a contractor. If a contractor refuses to provide their TIN, you're required to begin backup withholding at 28%.

Mistake #2: Reporting in the Wrong Box

Some businesses confused nonemployee compensation (Box 7) with other income (Box 3). This mattered because Box 7 payments were subject to self-employment tax, while Box 3 payments often weren't. Solution: Use Box 7 for payments for services performed by non-employees. Use Box 3 only for specific items like prizes not for services, certain termination payments, or deceased employee wages paid to estates.

Mistake #3: Reporting Payments to Corporations

Many businesses unnecessarily reported payments to incorporated contractors. Solution: Don't report payments to C-corporations or S-corporations unless you're paying for legal services, medical services, or fish purchases—these always require reporting regardless of corporate status.

Mistake #4: Including Reimbursed Expenses

Some payers reported the full amount they paid, including reimbursements for travel or materials, when they should have reported only compensation. Solution: If you reimbursed specific, documented expenses separately from compensation, you might exclude those reimbursements. However, if materials or expenses were part of a flat fee, report the entire amount.

Mistake #5: Missing the Filing Deadline

Forgetting the February 1 recipient deadline or the February 29 IRS deadline led to unnecessary penalties. Solution: Set calendar reminders in early January to begin the process. Consider using accounting software with built-in compliance reminders.

Mistake #6: Checking the VOID Box When Correcting

When filing a corrected form, some businesses mistakenly checked the VOID box, causing the IRS scanners to skip the form entirely. Solution: Check only the CORRECTED box, not VOID, when submitting corrections.

What Happens After You File

IRS Matching Program

The IRS entered your reported information into its computer systems and compared it against what recipients reported on their tax returns. If a recipient failed to report income shown on a 1099-MISC, the IRS's automated systems would flag the discrepancy and potentially send the recipient a notice (CP2000) proposing additional tax, penalties, and interest.

Recipient Tax Obligations

Recipients used the information on Form 1099-MISC to complete their tax returns. Self-employed individuals reported Box 7 amounts on Schedule C (Profit or Loss from Business) or Schedule F (Profit or Loss from Farming), which flowed to Form 1040. They also calculated self-employment tax on Schedule SE, which covers Social Security and Medicare contributions that employees and employers typically split.

Your Business Records

The 1099-MISC served as documentation supporting your business deductions. If the IRS audited your business, these forms proved you paid legitimate business expenses. You were required to retain copies for at least three years from the filing date (though many tax professionals recommend keeping them longer).

Potential Penalties for Non-Compliance

If you failed to file or filed incorrectly, the IRS could assess penalties ranging from $50 to $280 per form depending on how late the filing occurred. Additionally, if you intentionally disregarded the filing requirement, penalties could reach $570 per form with no maximum limit. Recipients could also face penalties if they couldn't substantiate their income without a 1099-MISC from you.

State Tax Implications

Many states required copies of 1099-MISC forms or had their own reporting requirements. After filing with the IRS, you might need to file with your state tax agency, depending on where you and the contractor were located.

FAQs

Q: What if I paid someone exactly $600—do I still need to file?

A: Yes. The threshold is "$600 or more," so a payment of exactly $600 requires a 1099-MISC. Only payments under $600 are exempt (unless backup withholding applied).

Q: Do I need to issue a 1099-MISC to an LLC?

A: It depends on how the LLC is taxed. If the LLC is taxed as a sole proprietorship (single-member LLC) or partnership, yes, you need to file. If it's taxed as a corporation (C-corp or S-corp), you generally don't—except for legal or medical services. The LLC's Form W-9 should indicate its tax classification.

Q: What if a contractor won't provide their Social Security Number or EIN?

A: You're still required to pay them, but you must begin backup withholding at 28% of each payment. Report the gross amount in Box 7 and the withheld amount in Box 4. If they don't provide their TIN by year-end, you can leave the TIN field blank but should file Form 1099-MISC anyway—and you may face a $50 penalty per form for the missing TIN.

Q: I paid a contractor in 2015 but they did the work in 2014. Which year do I report?

A: Report payments in the year you actually paid them, not when the work was performed. Form 1099-MISC uses the cash method of accounting, so a payment made in January 2016 for 2015 work would be reported on the 2016 form.

Q: Can I file Form 1099-MISC electronically, and do I have to?

A: Yes, you can file electronically, and if you're filing 250 or more forms of any type, electronic filing is mandatory. The electronic filing deadline was March 31, 2016 (one month later than the paper deadline). You needed IRS-approved software that met the specifications in IRS Publication 1220.

Q: What if I discover an error after filing—can I correct it?

A: Absolutely. File a corrected Form 1099-MISC with the CORRECTED box checked (not VOID). Enter all the correct information and file it with the IRS along with a new Form 1096. Also furnish a corrected copy to the recipient with a note explaining the correction.

Q: Do I need to report credit card payments to contractors on Form 1099-MISC?

A: No. Payments made by credit card, debit card, gift card, or third-party payment networks (like PayPal for business transactions) are reported by the payment processor on Form 1099-K, not by you on Form 1099-MISC. This prevents duplicate reporting. However, if you paid by check, cash, or direct bank transfer, you must report it on Form 1099-MISC.

Authoritative Sources

This guide is based on IRS rules as they existed for the 2015 tax year. Form 1099-NEC was reintroduced starting in tax year 2020 to separately report nonemployee compensation. For current tax year requirements, please consult the latest IRS guidance at IRS.gov.

IRS Sources:
2015 Form 1099-MISC
2015 Instructions for Form 1099-MISC