In 2010, nonemployee compensation was reported in Box 7 of Form 1099-MISC. The separate Form 1099-NEC did not exist until tax year 2020. This guide covers the 2010 tax year requirements.

What the Form Is For

Form 1099-MISC (Miscellaneous Income) is an information return that businesses use to report various types of payments made during their trade or business. For the 2010 tax year, Box 7 of this form was specifically designated for reporting "nonemployee compensation"—essentially, payments made to independent contractors, freelancers, and other non-employees for services they performed.

If your business paid someone $600 or more during 2010 for services, and that person was not your employee, you were generally required to report these payments to the IRS using Form 1099-MISC with the amount entered in Box 7. This reporting requirement helps the IRS track income earned by self-employed individuals and ensures they properly report it on their tax returns.

The form serves two critical purposes: it informs the IRS of payments made, and it provides recipients with documentation of their income for their own tax filing purposes. Recipients use the information from Box 7 to report their self-employment income on Schedule C (Profit or Loss from Business) or Schedule F (Profit or Loss from Farming) and to calculate their self-employment taxes on Schedule SE.

Common examples of payments reportable in Box 7 include fees paid to independent contractors, consultants, freelancers, attorneys (for services), accountants, architects, engineers, and other professionals who provided services but were not your employees. It also includes commissions paid to non-employee salespersons, payments to non-employee entertainers, and prizes or awards given for services performed by non-employees. IRS

When You’d Use This Form (Late/Amended)

Filing Deadlines for 2010

For the 2010 tax year, businesses had specific deadlines to meet. You needed to furnish Copy B of Form 1099-MISC to each recipient by January 31, 2011. The IRS required Copy A to be filed by February 28, 2011 for paper filing, or March 31, 2011 if filing electronically.

Late Filing

If you missed these deadlines, you should file as soon as possible. The IRS imposes penalties for late filing that increase the longer you wait. For 2010, penalties ranged from $15 to $50 per form depending on how late the filing was, with maximum caps applying based on business size.

Amended/Corrected Returns

You would need to file an amended or corrected Form 1099-MISC if you discovered errors after the original filing. Common reasons for corrections include reporting the wrong amount, using an incorrect taxpayer identification number (TIN), reporting income in the wrong box, or sending forms to the wrong person. To file a correction, you would prepare a new Form 1099-MISC, mark the "CORRECTED" box at the top, enter the correct information in all fields (not just the corrected items), and submit it to both the IRS and the recipient. Corrected forms should be filed as soon as you discover the error to minimize penalties and avoid confusion for the recipient. IRS

Key Rules or Details for 2010

The $600 Threshold

You were required to file Form 1099-MISC only if you paid $600 or more during the calendar year to any single individual or unincorporated business for services. Payments below this amount did not require reporting.

Trade or Business Requirement

The reporting requirement applied only to payments made "in the course of your trade or business." Personal payments made outside of a business context were not reportable.

Corporate Exception

Generally, you did not need to report payments made to corporations. However, there was an important exception: payments for legal services to attorneys must be reported regardless of whether the attorney operates as a corporation. This meant Box 7 reporting was required for attorneys' fees of $600 or more even if paid to a law firm organized as a corporation.

Employee vs. Independent Contractor

The form was only for non-employees. If someone was your employee, you should have reported their compensation on Form W-2, not Form 1099-MISC. The distinction between employee and independent contractor was critical—misclassifying workers could result in significant tax liabilities and penalties.

What to Include

Report the total compensation paid, including fees, commissions, prizes, and awards for services. If you reimbursed a non-employee for expenses and they didn't properly account to you for those expenses, those reimbursements were also reportable in Box 7.

Backup Withholding

If a contractor failed to provide you with their correct TIN, you were required to withhold 28% of their payments as backup withholding and report this amount in Box 4 of the form. IRS

Step-by-Step (High Level)

Step 1: Identify Reportable Payments

Review your records to identify all individuals and unincorporated entities to whom you paid $600 or more for services during 2010.

Step 2: Collect TINs

Obtain a completed Form W-9 (Request for Taxpayer Identification Number and Certification) from each contractor before or at the time of payment. This form provides their correct name, address, and TIN (usually a Social Security Number or Employer Identification Number).

Step 3: Obtain Forms

Order official scannable Form 1099-MISC Copy A forms from the IRS by calling 1-800-TAX-FORM (1-800-829-3676) or use IRS-approved software for electronic filing. Note that forms printed from the IRS website were not acceptable for filing as they couldn't be scanned properly.

Step 4: Complete the Forms

Fill out a separate Form 1099-MISC for each recipient. Enter your business information as the payer, the recipient's information, and the total amount paid in Box 7. If you withheld backup withholding, enter that amount in Box 4.

Step 5: Distribute Copies

Provide Copy B to each recipient by January 31, 2011. Recipients need this to complete their tax returns.

Step 6: File with IRS

Submit Copy A to the IRS along with Form 1096 (Annual Summary and Transmittal of U.S. Information Returns) by February 28, 2011 (paper) or March 31, 2011 (electronic). Form 1096 serves as a cover sheet summarizing all your 1099-MISC forms.

Step 7: Keep Records

Retain Copy C for your business records for at least three years from the due date. IRS

Common Mistakes and How to Avoid Them

Mistake 1: Missing the TIN

Failing to obtain the contractor's TIN before making payments. Solution: Always request Form W-9 before your first payment to a new contractor. If they refuse, you must begin backup withholding at 28%.

Mistake 2: Wrong Box

Reporting nonemployee compensation in the wrong box (such as Box 3 instead of Box 7). This was critical because Box 7 amounts triggered self-employment tax reporting. Solution: Carefully review IRS instructions to ensure you're using the correct box for the type of payment.

Mistake 3: Incorrect TIN

Using an incorrect or misspelled name/TIN combination. The IRS matches this information, and mismatches trigger penalties. Solution: Verify information on Form W-9 matches exactly what's on file with the IRS. The IRS offered a TIN Matching System to verify numbers before filing.

Mistake 4: Including Payments to Corporations

Reporting payments to corporations when not required (except for attorney fees, which must always be reported). Solution: Determine the business structure before filing. When in doubt about attorney fees, always report them.

Mistake 5: Missing the Filing Deadline

Late filing results in escalating penalties. Solution: Mark calendar deadlines well in advance and consider electronic filing, which provides an extra month (March 31 vs. February 28).

Mistake 6: Reporting Personal Payments

Including payments made for personal reasons rather than business purposes. Solution: Only report payments made in the course of your trade or business.

Mistake 7: Not Filing Because Amount Was "Close" to $600

Some businesses wrongly assume $599 doesn't need reporting. Solution: The threshold is $600 or more. If you paid exactly $600, you must file. Keep accurate records of all payments throughout the year. IRS

What Happens After You File

For Your Business

The IRS processes the information and matches it against the income reported on contractors' tax returns. You should retain your copies for at least three years in case of an audit. If the IRS identifies discrepancies or problems with your filing (such as incorrect TINs), you may receive a notice requesting corrections or assessing penalties.

For Recipients

Independent contractors use the information from Box 7 to complete their Schedule C or Schedule F when filing their personal tax returns (Form 1040). They must report this as self-employment income and pay both income tax and self-employment tax (Social Security and Medicare) on these amounts. The self-employment tax rate for 2010 was 15.3% on net earnings.

IRS Matching Program

The IRS uses sophisticated computer systems to match the 1099-MISC forms you file against the income taxpayers report. If a contractor fails to report income that you documented on Form 1099-MISC, the IRS may send them a notice and assess additional taxes, interest, and penalties. This is why accurate reporting protects both you and your contractors.

Potential Audits

Proper Form 1099-MISC filing reduces your audit risk. If you're audited, the IRS will verify that you filed required information returns and properly classified workers. Missing forms or worker misclassification can result in significant penalties and back taxes.

State Requirements

Many states also require copies of Form 1099-MISC for their own tax enforcement purposes. Check your state's specific requirements, as some states had different deadlines or additional forms. IRS

FAQs

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

No. The reporting requirement only applies to payments of $600 or more during the calendar year. However, keep accurate records because if you make even one more dollar in payments, you'll need to report the full amount.

Q2: What's the difference between an employee and an independent contractor for Form 1099-MISC purposes?

Employees receive Form W-2 and have taxes withheld from their paychecks. Independent contractors control how they perform their work, provide their own tools, and receive Form 1099-MISC in Box 7. The IRS uses various factors to determine worker classification, including behavioral control, financial control, and the relationship between parties. Misclassification can result in serious penalties.

Q3: I paid an attorney $1,000 from their law firm (a corporation). Do I still need to file?

Yes. Unlike other corporate payments, attorney fees of $600 or more must always be reported in Box 7, regardless of whether the attorney operates as a sole proprietor, partnership, or corporation. This was a specific exception to the general rule that corporate payments don't require reporting.

Q4: What if my contractor won't give me their Social Security Number or TIN?

You should request Form W-9 before making payments. If the contractor refuses to provide their TIN, you are required by law to begin backup withholding at 28% on all payments and remit that amount to the IRS. You must still file Form 1099-MISC, leaving the TIN field blank if necessary, though this may result in penalties for the contractor.

Q5: Can I file Form 1099-MISC electronically?

Yes. For 2010, electronic filing was available and gave you until March 31, 2011, to file—one month later than the paper filing deadline of February 28, 2011. However, electronic filing required IRS-approved software that generated files according to IRS specifications. The IRS did not provide a fill-in form option for electronic filing.

Q6: What happens if I forget to file or file late?

The IRS assesses penalties for late filing that increase over time. For 2010, if you filed correctly within 30 days of the deadline, the penalty was $15 per form (with caps based on business size). Filing 30 days to August 1 increased the penalty to $30 per form, and after August 1, the penalty was $50 per form. Intentional disregard carried even higher penalties. File as soon as you discover the error to minimize penalties.

Q7: I made a mistake on a Form 1099-MISC I already filed. How do I fix it?

File a corrected Form 1099-MISC as soon as you discover the error. Check the "CORRECTED" box at the top, enter all information correctly (not just the error), and submit it to both the IRS and the recipient. The sooner you correct errors, the better—it helps the recipient file their tax return accurately and reduces potential penalties for both parties.

For More Information

Access the complete 2010 Form 1099-MISC instructions and forms at IRS.gov, or call the IRS information reporting customer service at 1-866-455-7438.