Form 1099-MISC Miscellaneous Income (2016): A Complete Guide for Taxpayers
What Form 1099-MISC Is For
Form 1099-MISC is the IRS's way of tracking various types of income that don't fit neatly into other categories. Think of it as a financial "catch-all" form that businesses and individuals use to report payments they've made to independent contractors, freelancers, landlords, and others during the tax year. The form serves two purposes: it tells the IRS how much you paid someone, and it tells that person (the recipient) how much income they received that must be reported on their tax return.
For the 2016 tax year, Form 1099-MISC captured a wide range of payments including rent over $600, royalties of $10 or more, prizes and awards, payments to independent contractors, medical and health care payments, and attorney fees. The most common use was reporting payments to independent contractors and freelancers—money paid to people who did work for your business but weren't your employees. Unlike employees who receive a W-2 form, these non-employee workers receive a 1099-MISC.
The form helps the IRS ensure that all income is properly reported and taxed. When a business pays you $600 or more during the year for services (and sometimes less for certain types of payments), they're required to send you a copy of the 1099-MISC showing what you were paid, and they must send the same information to the IRS. This creates a paper trail that helps prevent income from going unreported.
When You'd Use It (Late/Amended)
Most Form 1099-MISC forms for 2016 should have been filed by specific deadlines in early 2017, but life doesn't always go according to plan. You might need to file late or amend a previously filed form in several situations.
Late Filing
If you discovered you should have filed a 1099-MISC but didn't, file it as soon as possible. Maybe you hired a contractor, forgot to get their tax information, and only remembered when preparing your own taxes. While late filing triggers penalties (more on that later), filing late is always better than not filing at all. The IRS appreciates good-faith efforts to correct oversights.
Amended Returns
You'd file an amended (corrected) Form 1099-MISC if you made a mistake on the original. Common scenarios include entering the wrong dollar amount, using an incorrect taxpayer identification number (TIN), misspelling the recipient's name, or checking the wrong box. For 2016, there were 18 different boxes on the form, and it's surprisingly easy to put rent income in the wrong place or accidentally swap royalty payments with other income.
To correct a mistake, you generally need to file a new form marked "CORRECTED" at the top. If you simply put money in the wrong box, you file one corrected form with the right information. However, if you got someone's name or tax ID wrong, you need to file two forms: one to "zero out" the incorrect one, and another with the correct information as if it were an original filing. Always send a corrected statement to the recipient as well, so they can update their own tax returns if necessary.
Key Rules for 2016
The 2016 tax year brought some important changes and specific rules worth noting. The most significant change was a new filing deadline: if you reported nonemployee compensation in Box 7, you had to file Form 1099-MISC with the IRS by January 31, 2017—the same deadline for giving copies to recipients. This represented a major shift from previous years and caught many businesses off guard. For all other types of payments, the IRS deadline remained February 28, 2017 for paper filing, or March 31, 2017 if filing electronically.
Reporting thresholds varied depending on the type of payment. For most payments—including rent, services by non-employees, prizes, and medical payments—the threshold was $600 or more during the calendar year. However, royalty payments required reporting at just $10 or more. If you withheld any federal income tax under backup withholding rules, you had to file the form regardless of the payment amount.
Electronic filing became mandatory if you filed 250 or more of any single type of form. So if you issued 250 or more 1099-MISC forms, you couldn't file them on paper—you had to use the IRS FIRE (Filing Information Returns Electronically) system.
Corporation exemption: Generally, you didn't need to issue 1099-MISC forms to corporations, but there were important exceptions. You did need to report payments to corporations for medical and health care services, attorney fees, gross proceeds paid to attorneys, fish purchases, and payments by federal executive agencies for services. This exception caught many filers by surprise.
One new exception for 2016: you did not need to report compensation for wrongful incarceration or certain payments to public safety officers for disability benefits—these were specifically excluded from 1099-MISC reporting requirements.
Step-by-Step Filing (High Level)
Step 1: Gather Information
Before year-end, you should have collected Form W-9 from everyone you planned to pay. This form provides their legal name, business name (if applicable), address, and taxpayer identification number—either a Social Security Number or Employer Identification Number. Without this information, you'd need to start backup withholding at 28% on future payments.
Step 2: Determine Who Needs a Form
Review all your payments for the year. Did you pay anyone $600 or more for services, rent, or other covered payments? Did you pay $10 or more in royalties? Exclude employee wages (those go on W-2), payments to corporations (with the exceptions noted earlier), and personal payments not related to your business.
Step 3: Complete the Forms
Each Form 1099-MISC has three copies: Copy A (red, filed with the IRS), Copy B (recipient's federal copy), and Copy C (your records). Enter your business information in the payer section, the recipient's information and TIN in the recipient section, and the payment amounts in the appropriate boxes. Box 7 was the most commonly used—for nonemployee compensation. Be precise: the IRS matches these amounts to what recipients report on their tax returns.
Step 4: Send to Recipients
Generally by January 31, 2017, you needed to provide Copy B to each recipient. This gave them time to include the income on their tax returns.
Step 5: File with the IRS
Submit Copy A along with Form 1096 (the transmittal form that summarizes all your 1099s) to the appropriate IRS service center. Remember the special January 31 deadline if you reported Box 7 payments; otherwise, February 28 for paper or March 31 for electronic filing.
Step 6: Keep Records
Maintain copies and supporting documentation for at least three years in case of questions or audits.
Common Mistakes and How to Avoid Them
Mistake #1: Using the wrong box
Each payment type has a designated box, and putting income in the wrong place causes problems for both the IRS and the recipient. Rent goes in Box 1, royalties in Box 2, other income in Box 3, and payments to independent contractors in Box 7. Double-check before filing, as the IRS uses box numbers to determine how income should be taxed.
Mistake #2: Missing or incorrect taxpayer identification numbers
This is perhaps the most serious error. Without a correct TIN, the IRS can't match the form to the recipient's tax return. Always get Form W-9 before making payments. If you file with an incorrect or missing TIN, you face penalties and must start backup withholding.
Mistake #3: Checking the VOID box on corrections
When filing a corrected return on paper, never check the VOID box. The IRS scanners treat that as an instruction to ignore the form entirely, so your correction won't be processed. Instead, check the CORRECTED box.
Mistake #4: Reporting credit card payments
If you paid someone via credit card or through a payment processor, you generally should not report it on Form 1099-MISC. Payment settlement entities report these transactions on Form 1099-K instead. Reporting the same payment twice creates confusion and could lead to the recipient being taxed twice on the same income.
Mistake #5: Issuing forms to corporations unnecessarily
While corporations are generally exempt from 1099-MISC reporting, many people file them anyway "just to be safe." This creates unnecessary paperwork. Learn the specific exceptions (medical payments, attorneys, etc.) and only file when required.
Mistake #6: Missing the accelerated deadline
In 2016, the January 31 deadline for Box 7 payments was relatively new. Many businesses missed it because they were used to the old February deadline. Mark your calendar clearly and file Box 7 forms early.
Mistake #7: Not getting recipient information early
Waiting until December to request W-9 forms from contractors often results in delays and missing information. Make it a practice to get Form W-9 before or immediately after making the first payment to anyone.
What Happens After You File
Once you've filed Form 1099-MISC, several things happen behind the scenes. The IRS enters your information into their database and begins the matching process. Their computers compare the income you reported paying with the income recipients report receiving on their tax returns. This matching process can take months, even extending into the following year.
If everything matches, you likely won't hear anything from the IRS—silence is golden in this case. Recipients use the information to complete their tax returns, reporting the income on Schedule C (for business income), Schedule E (for rents and royalties), or other appropriate forms. They may owe self-employment tax on the income in addition to regular income tax.
However, if there's a mismatch or problem, you might receive an IRS notice. Common notices include CP2100 or CP2100A, which inform you that the name and TIN combinations you reported don't match IRS records. You must send a "B" notice to the recipient requesting corrected information and may need to start backup withholding on future payments. If you don't respond properly, penalties can follow.
Recipients might contact you with questions, especially if they think the amount is wrong or if their tax preparer needs clarification. Keep good records so you can quickly verify the information. Some recipients may ask for corrected forms if they discover errors that affect their tax liability.
The IRS can assess penalties at any point during their three-year review window (four years for certain forms). Late or incorrect filing can result in notices months or even years after you thought the matter was closed. That's why maintaining detailed records is so important—you need documentation to support your filing or to demonstrate reasonable cause if you made a good-faith error.
FAQs
Q1: Do I need to file a 1099-MISC if I paid someone less than $600?
Generally, no. The $600 threshold applies to most reportable payments, including nonemployee compensation, rents, and services. However, there are exceptions: royalties must be reported at $10 or more, and if you withheld any federal income tax under backup withholding rules, you must file regardless of the amount. Also, you don't need to report personal payments—only those made in the course of your trade or business.
Q2: What's the difference between an employee and an independent contractor for 1099-MISC purposes?
Employees receive wages reported on Form W-2, with taxes withheld from each paycheck. Independent contractors receive payments reported on Form 1099-MISC (Box 7), with no tax withholding. The distinction depends on the level of control you have over how work is performed. Generally, if you control not just what work is done but how it's done, provide equipment and training, and maintain an ongoing relationship, the worker is probably an employee. When in doubt, consult IRS Publication 15-A or Form SS-8 to request an official determination.
Q3: I made a mistake on a 1099-MISC I already filed. How do I fix it?
File a corrected Form 1099-MISC as soon as you discover the error. For simple corrections (wrong amount, wrong box), prepare a new form with the correct information and check the CORRECTED box at the top. File it with Form 1096 and send a corrected copy to the recipient. For errors involving incorrect names or tax IDs, you'll need to file two forms: one marking the original as incorrect (with zero amounts) and one with the complete correct information. The sooner you file corrections, the less likely penalties will apply.
Q4: What if the person I paid refuses to provide their taxpayer identification number?
You should request Form W-9 before or when you make the first payment. If the recipient refuses to provide their TIN or fails to respond, you must begin backup withholding at 28% on any reportable payments over $600. File Form 1099-MISC showing the amounts paid and withheld, even without a TIN. Report "APPLIED FOR" in the TIN box if they've genuinely applied for one. The recipient may face penalties for failing to provide their TIN, and you've protected yourself by withholding and reporting properly.
Q5: Do I need to file 1099-MISC for payments made through credit card or payment processors?
Usually, no. Payment settlement entities (credit card companies and similar third-party processors) report these payments on Form 1099-K. Reporting the same payment on both Form 1099-MISC and Form 1099-K causes double reporting and can result in the IRS thinking the recipient received twice as much income as they actually did. However, if you paid by check or cash, you do need to file Form 1099-MISC if the payment meets reporting requirements.
Q6: What penalties can I face for late or incorrect Form 1099-MISC?
For 2016 filings, penalties depended on how late you filed corrections. Filing within 30 days of the due date resulted in a $50 penalty per form (maximum $532,000 annually, or $186,000 for small businesses). Filing more than 30 days late but by August 1 increased the penalty to $100 per form (maximum $1,596,500, or $532,000 for small businesses). Filing after August 1 or not filing at all brought a $260 penalty per form (maximum $3,193,000, or $1,064,000 for small businesses). If the IRS determines you intentionally disregarded filing requirements, the penalty jumps to at least $530 per form with no maximum. The same penalties apply for failing to furnish correct recipient statements.
Q7: Can I file Form 1099-MISC electronically, and should I?
Yes, you can file electronically through the IRS FIRE system. If you filed 250 or more of any single form type during the year, electronic filing was mandatory. Even if you filed fewer forms, electronic filing offers advantages: faster processing, immediate confirmation of receipt, reduced errors from manual entry, and an extra month to file (March 31 vs. February 28 for paper). The IRS strongly encourages electronic filing. You'll need to register for the FIRE system and may want to use approved tax software that integrates with the system.
Sources
2016 Instructions for Form 1099-MISC (IRS.gov)
2016 General Instructions for Certain Information Returns (IRS.gov)
This summary is for educational purposes and reflects 2016 tax year rules. Tax laws change frequently. Consult the current IRS instructions or a tax professional for guidance on recent tax years.
