What Form 1099-MISC Is For

Form 1099-MISC (Miscellaneous Income) is an IRS information return that businesses, government agencies, and nonprofit organizations use to report various types of payments made during the tax year. The form serves as both a record for the IRS and documentation for recipients who need to report this income on their tax returns.

In 2011, payers were required to file Form 1099-MISC when they made payments of $600 or more in the course of their trade or business for services, rents, prizes and awards, medical and health care payments, crop insurance proceeds, cash for fish purchases, and payments to attorneys. The form also captured smaller amounts for specific payment types—such as $10 or more in royalties or broker payments in lieu of dividends or tax-exempt interest.

The key principle behind Form 1099-MISC is “trade or business reporting only.” Personal payments don't need to be reported. This means if you paid someone for work on your home as a personal expense, no Form 1099-MISC was required. However, if you operated a business—whether for-profit or nonprofit—and made qualifying payments, you generally had to file.

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

For the 2011 tax year, Form 1099-MISC had specific deadlines. Payers had to furnish Copy B to recipients by January 31, 2012, with an extended deadline to February 15, 2012 for payments reported in boxes 8 (substitute payments in lieu of dividends or interest) or 14 (gross proceeds paid to attorneys). Copy A had to be filed with the IRS by February 28, 2012 for paper filers, or April 2, 2012 for electronic filers.

If you missed these deadlines or discovered errors after filing, you would file a corrected Form 1099-MISC. To correct a previously filed form, you'd check the “CORRECTED” box at the top and complete the form with the correct information, including all previously reported amounts plus any corrections. The corrected form needed to be filed as soon as the error was discovered.

Late filing carried penalties that increased based on how late the form was filed—ranging from $30 per form if filed within 30 days after the due date, to $100 per form if filed after August 1 or not filed at all. Maximum penalties existed for small businesses, but these could add up quickly for multiple forms.

Key Rules for the 2011 Tax Year

Reporting Thresholds

Most payments required reporting at $600 or more, but royalties and substitute payments had a lower $10 threshold. Direct sales of at least $5,000 of consumer products for resale also triggered reporting requirements.

Corporate Exception

Generally, payments to corporations didn't require Form 1099-MISC. However, important exceptions existed for medical and health care payments, fish purchases for cash, attorneys' fees, and gross proceeds paid to attorneys—these had to be reported even when paid to corporations.

New Form 1099-K Impact

A significant change in 2011 was the introduction of Form 1099-K for payment card transactions. If payments were made with credit cards, debit cards, or through third-party networks like PayPal, they were reported on Form 1099-K by the payment settlement entity, not on Form 1099-MISC by the payer.

Backup Withholding

If a payee failed to provide a correct taxpayer identification number (TIN), payers had to withhold federal income tax at 28% on reportable payments and report this withholding in box 4.

Attorney Payments

New attention was given to attorney payments in 2011. Payers had to report both attorneys' fees (box 7) and gross proceeds of $600 or more paid to attorneys in connection with legal services (box 14), even if the services weren't performed for the payer. This applied regardless of whether the attorney was a corporation.

Identification Numbers

For 2011, a pilot program for truncating recipient identification numbers on paper payee statements had ended, meaning filers had to show the recipient's complete TIN on all copies of the form.

Step-by-Step Filing Process (High Level)

1. Collect Taxpayer Information

Before making payments, obtain Form W-9 (Request for Taxpayer Identification Number and Certification) from each payee. This provided their correct legal name, address, and TIN—essential for accurate reporting.

2. Track Payments Throughout the Year

Maintain detailed records of all payments that might be reportable. Note the type of payment to ensure it's reported in the correct box on the form.

3. Determine Who Needs a Form

At year-end, identify all payees who received $600 or more (or $10 or more for certain payments). Remember the corporate exception and its specific exclusions.

4. Complete the Forms

Fill out a separate Form 1099-MISC for each qualifying recipient. Enter your business information as the payer, the recipient's information, and the payment amounts in the appropriate boxes (boxes 1–18). Common boxes included:

• Box 1: Rents
• Box 2: Royalties
• Box 3: Other Income
• Box 6: Medical and Health Care Payments
• Box 7: Nonemployee Compensation

5. File with the IRS

Submit Copy A to the IRS along with Form 1096 (Annual Summary and Transmittal of U.S. Information Returns) by the deadline. Paper forms went to the appropriate IRS service center; electronic filers used approved software meeting IRS specifications in Publication 1220.

6. Provide Copies to Recipients

Send Copy B to each recipient by the January 31 deadline (or February 15 for boxes 8 and 14), and provide Copy 2 for state tax filing if required.

7. Retain Your Records

Keep Copy C for your records along with supporting documentation for at least three years.

Common Mistakes and How to Avoid Them

Mistake 1: Reporting Payments to Corporations

Many payers unnecessarily filed Forms 1099-MISC for corporations.
Solution: Review the specific exceptions list carefully, and when in doubt, verify whether the corporation provides one of the services requiring reporting regardless of entity type.

Mistake 2: Incorrect Box Selection

Reporting payments in the wrong box was common and problematic because the IRS uses box information to verify recipient reporting.
Solution: Carefully review the specific instructions for each box and match your payment type precisely to the correct box.

Mistake 3: Missing or Incorrect TINs

Failing to obtain valid taxpayer identification numbers before making payments led to backup withholding requirements and potential penalties.
Solution: Request Form W-9 from all new vendors and independent contractors before making the first payment. Verify TINs using the IRS TIN Matching Program if available.

Mistake 4: Misclassifying Workers

Confusion between employees and independent contractors led to filing Form 1099-MISC for someone who should have received Form W-2, or vice versa.
Solution: Understand the factors that determine worker classification. If you control how, when, and where the work is performed, the worker is likely an employee. When uncertain, see IRS Publication 15-A or file Form SS-8 to request an IRS determination.

Mistake 5: Forgetting to File Form 1096

Payers sometimes sent Copy A forms to the IRS without the required Form 1096 summary transmittal.
Solution: Always complete Form 1096 when filing paper Forms 1099-MISC, summarizing the number of forms and total amounts reported.

Mistake 6: Reporting Credit Card Payments

With the new Form 1099-K in effect, some payers incorrectly reported credit card and payment card transactions on Form 1099-MISC.
Solution: Remember that payment settlement entities report these transactions on Form 1099-K. Don’t duplicate reporting on Form 1099-MISC.

What Happens After You File

IRS Matching Process

Once you file Form 1099-MISC, the IRS uses the information to match against income reported on recipients' tax returns. The IRS’s computer systems automatically compare the amounts you report with what recipients claim, looking for discrepancies.

For Recipients

Individuals receiving Form 1099-MISC must report the income on their tax returns.

• Box 7 amounts (nonemployee compensation) typically go on Schedule C (Form 1040) and are subject to self-employment tax.
• Other boxes route to different forms—rents and royalties to Schedule E, other income to Form 1040 Line 21, etc.

For Payers

If you failed to file required Forms 1099-MISC or filed them incorrectly, the IRS may assess penalties or request missing forms. Penalties ranged from $30 to $100 per form in 2011, with higher penalties for intentional disregard.

Amended Returns

If you or a recipient discovers an error after filing, corrections should be made promptly. Payers file corrected Forms 1099-MISC, and recipients may need to file Form 1040X if the error affected reported income.

State Filing

Many states also required copies of Form 1099-MISC or had their own information return requirements. Copy 1 went to state tax departments where applicable, and recipients used Copy 2 for their state returns.

FAQs

Q1: Do I need to file Form 1099-MISC if I paid someone less than $600?

Generally, no. The $600 threshold applies to most payment categories. However, royalties and substitute payments in lieu of dividends or tax-exempt interest require $10 or more to trigger reporting. You must also file if you withheld any federal income tax under backup withholding, regardless of the payment amount.

Q2: What’s the difference between an independent contractor and an employee?

The key distinction involves control. Employees are subject to behavioral and financial control; independent contractors are not. Employees receive Form W-2; independent contractors doing business-related work of $600 or more receive Form 1099-MISC.

Q3: I paid my landlord $12,000 in rent for my business office. Do I file Form 1099-MISC?

It depends. Payments to real estate agents are generally exempt, but direct payments to a landlord (not a corporation) require reporting in Box 1 (Rents). This applies only to business rent, not personal residence rent.

Q4: Can I file Form 1099-MISC electronically?

Yes. Electronic filing was encouraged in 2011, with a deadline of April 2, 2012. Filers needed software meeting IRS Publication 1220 standards—there was no free IRS fill-in option.

Q5: What happens if the payee’s name and TIN don’t match IRS records?

You may receive a “B” notice from the IRS requiring backup withholding at 28% on future payments. Request a new Form W-9. After two B notices in three years, you may check the “2nd TIN not.” box to stop receiving notices for that payee.

Q6: I paid an attorney to settle a legal claim. Which box do I use?

Attorney payments could go in Box 7 (Nonemployee Compensation) for legal services provided to you, or Box 14 (Gross Proceeds Paid to an Attorney) for settlement-related payments. Always report gross amounts in Box 14 when applicable.

Q7: What records should I keep after filing?

Maintain Copy C and all supporting documents (invoices, contracts, W-9s) for at least three years—preferably up to seven for complex or disputed payments.

Sources

All information derived from official IRS publications:

• Instructions for Form 1099-MISC (2011)
• Form 1099-MISC (2011)
• General Instructions for Certain Information Returns (2011)