For the 2017 tax year, nonemployee compensation was reported in Box 7 of Form 1099-MISC. The standalone Form 1099-NEC didn't exist yet—it was reintroduced starting with the 2020 tax year. This guide covers the 2017 rules when Box 7 was the designated spot for independent contractor payments.

What Form 1099-MISC Is For

Form 1099-MISC (Miscellaneous Income) is an information return that businesses use to report various types of payments made during the year. In 2017, Box 7 of this form was specifically designated for nonemployee compensation—payments made to independent contractors, freelancers, and other non-employees who performed services for your business.

If you paid someone $600 or more for services and that person wasn't your employee, you likely needed to report those payments in Box 7. This includes payments to sole proprietors, partnerships, limited liability companies (LLCs), and sometimes even certain corporations. The form serves two purposes: it informs the IRS about these payments and provides documentation to the recipient for their tax return preparation. IRS.gov

Think of it as the business version of the W-2 form, but for workers you don't treat as employees. Common recipients include freelance writers, consultants, attorneys (even those working for law firms), plumbers who fix your office sink, graphic designers, and anyone else who provides services to your business as an independent contractor.

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

Original Filing

For the 2017 tax year, if you reported nonemployee compensation in Box 7, you had a stricter deadline than other Form 1099-MISC filers. Congress accelerated this deadline starting with 2016 payments reported in 2017. You were required to file Form 1099-MISC with the IRS by January 31, 2018—whether filing on paper or electronically. You also had to provide Copy B to the recipient by this same date.

This January 31 deadline applied only to forms reporting nonemployee compensation in Box 7. Other types of payments on Form 1099-MISC had later deadlines: February 28, 2018 for paper filing or April 2, 2018 for electronic filing. IRS.gov

Late Filing

If you missed the January 31 deadline, you should still file as soon as possible. For 2017, penalties for late filing started at $50 per form if filed within 30 days of the deadline, increasing to $100 per form if filed more than 30 days late but by August 1, and $260 per form if filed after August 1. The maximum penalty could reach $3,178,500 per year for larger businesses. Intentional disregard of filing requirements carried even steeper penalties of at least $530 per form with no maximum cap. IRS.gov

Amended Returns

If you discover an error after filing—perhaps you reported the wrong amount, used an incorrect taxpayer identification number, or put information in the wrong box—you need to file a corrected Form 1099-MISC. Critical rule: Do not check the "VOID" box when filing a correction. The VOID box is only for payers who need to cancel a form entirely before the IRS processes it. For corrections, mark the "CORRECTED" box at the top of the form and complete the entire form with the correct information. File this corrected form with the IRS and furnish a corrected statement to the recipient. IRS.gov

Key Rules or Details for 2017

Box 7 Filing Conditions (All Must Be Met)

• Non-employee status: The payment went to someone who is not your employee (no W-2 issued).
• Business purpose: You made the payment for services performed in the course of your trade or business.
• Recipient type: The payment went to an individual, partnership, estate, or in some cases, a corporation.
• $600 threshold: Your total payments to that recipient reached at least $600 during the 2017 calendar year.

What to Report in Box 7

• Professional fees (attorneys, accountants, architects, contractors, engineers)
• Commissions to non-employee salespersons
• Fees for services plus incidental parts/materials (like an auto repair showing labor and parts together)
• Prizes and awards for services performed by non-employees
• Director's fees and post-retirement payments to former directors
• Fish purchases for cash (if you're in that business)
• Oil and gas payments for working interests
• Payments to federal vendors for services (if you're a federal executive agency)

Important Exceptions — Do NOT Report in Box 7

• Payments to most corporations (but you must report attorney fees even if paid to a corporation)
• Payments under $600 to any single recipient
• Rent (report in Box 1 instead)
• Royalties (report in Box 2 instead)
• Employee wages, bonuses, or reimbursements (use Form W-2)
• Payments for merchandise, freight, storage, or telegrams
• Personal payments not related to your business

Self-Employment Tax Impact

Amounts reported in Box 7 are generally subject to self-employment tax for the recipient, meaning they'll owe both the employer and employee portions of Social Security and Medicare taxes on this income. IRS.gov

Step-by-Step (High Level)

Step 1: Collect Information Throughout the Year

Before making your first payment to a non-employee, have them complete IRS Form W-9 (Request for Taxpayer Identification Number and Certification). This form provides their legal name, business name (if applicable), taxpayer identification number (TIN), and address. Keep these W-9 forms in your records.

Step 2: Track All Non-Employee Payments

Maintain detailed records of all payments to non-employees during the calendar year. When total payments to any single recipient approach or exceed $600, flag them for 1099-MISC reporting.

Step 3: Prepare Forms by Mid-January

In January 2018 (for 2017 payments), gather your payment records and W-9 forms. You'll need Copy A (red form for the IRS), Copy B and Copy 2 for the recipient, and Copy C for your records. Never file the recipient copies with the IRS—they're not scannable.

Step 4: Complete Each Form

• Enter your business information (name, address, federal identification number) in the payer section
• Enter recipient information from their W-9 in the recipient section
• In Box 7, enter the total amount paid for nonemployee compensation
• If you withheld backup withholding (rare, but happens if the recipient didn't provide a TIN), enter that amount in Box 4
• Complete any state tax information if your state requires it

Step 5: File with the IRS by January 31

Submit Copy A to the IRS along with Form 1096 (Annual Summary and Transmittal) if filing on paper. Send paper forms to the appropriate IRS service center address listed in the instructions. If filing electronically, you must have software that meets IRS specifications (Publication 1220). Note: You cannot use IRS printable PDFs for filing—only official red-ink forms or approved electronic formats are acceptable.

Step 6: Furnish Copy to Recipients by January 31

Provide Copy B (and Copy 2 if the recipient will file a state return) to each recipient by January 31, 2018. You can mail, deliver in person, or in some cases provide electronically if the recipient consents. IRS.gov

Common Mistakes and How to Avoid Them

Mistake #1: Misclassifying Workers

The most fundamental error is treating an employee as an independent contractor. Just because you want to avoid payroll taxes doesn't make someone a contractor. The IRS looks at behavioral control, financial control, and the relationship between parties. If you control how, when, and where someone works, they're probably an employee requiring a W-2, not a 1099-MISC.
How to avoid: Review IRS Publication 15-A and Form SS-8 guidelines. When in doubt, consult a tax professional before classifying a worker.

Mistake #2: Using the Wrong Box

Putting nonemployee compensation in Box 3 (Other Income) instead of Box 7 is problematic because Box 7 payments are subject to self-employment tax, while Box 3 payments may not be. The IRS matches these boxes to verify proper income reporting by recipients.
How to avoid: Review the specific box instructions. If payment was for services, it almost always goes in Box 7. Box 3 is for things like prizes not connected to services, deceased employee wages paid after year of death, or certain other specialized payments.

Mistake #3: Reporting Payments to Corporations

The general rule is you don't need to report payments to corporations. However, many businesses forget the critical exceptions: attorney fees, medical/health care payments, and payments to some federal contractors must be reported even when paid to corporations.
How to avoid: Ask all service providers to complete Form W-9, which includes a checkbox for corporation status. Flag all attorney payments and medical payments for reporting regardless of entity type.

Mistake #4: Incorrect or Missing Taxpayer Identification Numbers

Filing with wrong TINs or missing TINs triggers IRS backup withholding rules and penalty notices. The IRS will send you a "CP2100" or "CP2100A" notice if there's a TIN mismatch.
How to avoid: Always collect Form W-9 before making your first payment. Verify the TIN format is correct (Social Security Numbers use XXX-XX-XXXX format; Employer Identification Numbers use XX-XXXXXXX format). Consider using the IRS TIN Matching program if you process high volumes.

Mistake #5: Missing the Accelerated January 31 Deadline

Unlike other Form 1099-MISC boxes, Box 7 nonemployee compensation has a strict January 31 deadline for both IRS filing and recipient furnishing. Many businesses accustomed to the February 28 or April 2 deadlines for other information returns miss this earlier deadline.
How to avoid: Set calendar reminders for mid-January to begin preparation. If you have a large volume of 1099-MISC forms, consider electronic filing through approved software or payroll service providers who can handle the deadline.

Mistake #6: Checking "VOID" Instead of "CORRECTED"

When submitting corrections, checking the VOID box causes IRS scanning equipment to skip the form entirely, meaning your correction never gets processed.
How to avoid: Remember VOID = cancellation before processing; CORRECTED = fixing errors after filing. Always use CORRECTED for amendments to previously filed forms. IRS.gov

What Happens After You File

IRS Matching Process

Once you file Form 1099-MISC with the IRS, the information enters their computer systems for matching against recipients' tax returns. When the recipient files their Form 1040 (for individuals) or business return, the IRS compares the income they reported against the 1099-MISC forms on file. If there's a mismatch—the recipient didn't report income shown on a 1099-MISC, or reported less than you reported—the IRS may send the recipient a CP2000 notice proposing additional tax, penalties, and interest.

Recipient Responsibilities

Recipients who receive a 1099-MISC showing Box 7 nonemployee compensation must report this income on their tax return. Individuals typically report it on Schedule C (Profit or Loss from Business) or Schedule C-EZ if they're sole proprietors. They must also file Schedule SE (Self-Employment Tax) to calculate and pay Social Security and Medicare taxes on this income—usually 15.3% of net earnings. Partnerships report the income on Form 1065, and corporations on Form 1120 or 1120-S.

Backup Withholding Consequences

If you filed a 1099-MISC but the recipient's TIN was missing or incorrect, the IRS may notify you to begin backup withholding on future payments to that recipient at the current rate (24% as of recent years, though the 2017 rate was 28%). You must withhold this amount from future payments and remit it to the IRS until the TIN issue is resolved.

State Tax Implications

Many states require their own copies of Form 1099-MISC or have separate reporting requirements. If you completed Boxes 16-18 (state tax information) on the form, you must also file with your state tax authority according to state-specific rules. Recipients may need Copy 2 to file their state income tax returns.

Audit Trail

Your filed Forms 1099-MISC create a permanent record with the IRS. If either your business or the recipient is audited, these forms serve as documentation of income and payments. Keep Copy C (your copy) along with supporting records like invoices, contracts, and cancelled checks for at least three years, though four to seven years is safer in case of audits. IRS.gov

FAQs

Q1: I paid someone $500 for services in 2017. Do I need to file Form 1099-MISC?

No. The filing requirement threshold is $600 or more in total payments during the calendar year. Payments under $600 don't require Form 1099-MISC filing (though the recipient must still report the income on their tax return). However, you must file if you withheld any federal income tax under backup withholding rules, regardless of the payment amount.

Q2: I hired a limited liability company (LLC) to redesign my website. Do I report this on Form 1099-MISC?

It depends on how the LLC is taxed. If the LLC is a single-member LLC taxed as a sole proprietorship (disregarded entity) or a multi-member LLC taxed as a partnership, yes—report it in Box 7 if you paid $600 or more. If the LLC elected to be taxed as a corporation (C-corp or S-corp), you generally don't need to file Form 1099-MISC unless the services were legal services (attorney fees). The LLC's Form W-9 should indicate their tax classification.

Q3: What's the difference between Box 3 and Box 7 on Form 1099-MISC?

Box 7 (Nonemployee Compensation) is for payments for services performed by non-employees. These amounts are subject to self-employment tax for the recipient. Box 3 (Other Income) is for miscellaneous income that doesn't fit other boxes and generally isn't from services—things like prizes not for services, certain damages, deceased employee wages paid after the year of death, and other taxable income not subject to self-employment tax. Using the wrong box can cause tax calculation errors for recipients.

Q4: The contractor I paid gave me a W-9 showing they're a corporation. Do I still need to file Form 1099-MISC?

For most services, no—payments to corporations are exempt from Form 1099-MISC reporting. However, there are critical exceptions. You must report payments to corporations that provided: (1) legal services (attorney fees in Box 7 or gross proceeds to attorneys in Box 14), (2) medical/health care services (Box 6), or (3) services as a federal contractor (Box 7). When in doubt about these exceptions, file the form—there's no penalty for filing when not strictly required, but there are penalties for not filing when required. IRS.gov

Q5: I discovered in March 2018 that I forgot to file Form 1099-MISC for a contractor I paid in 2017. What should I do?

File the form as soon as possible. While you missed the January 31, 2018 deadline and will likely face a late-filing penalty (starting at $50 per form if less than 30 days late), filing late is much better than not filing at all. The penalty increases the longer you wait, topping out at $260 per form for forms filed after August 1 or not filed at all. Submit Copy A to the IRS with Form 1096, furnish copies to the recipient, and keep documentation of when you filed. If the recipient has already filed their 2017 tax return and properly reported the income, your late filing will match their return and may not cause them problems, though you may still receive a penalty notice.

Q6: Can I email Form 1099-MISC to recipients instead of mailing paper copies?

Yes, but only with the recipient's prior consent. The IRS allows electronic delivery of recipient copies if the recipient voluntarily agrees to receive the statement electronically and you follow specific requirements: the recipient must be able to access the form, you must notify them when the form is available, and the format must comply with IRS guidelines. You can't simply email a PDF attachment without proper consent. Many businesses use secure portals for electronic delivery. Paper mailing is still the default method unless you obtain proper electronic consent. IRS.gov

Q7: A contractor worked for me in December 2017, but I didn't pay them until January 2018. Which year do I report this on?

Form 1099-MISC uses cash-basis reporting—you report payments in the year they're actually made, not when services were performed. Since you paid in January 2018, this payment will be reported on the 2018 Form 1099-MISC that you'll file in January 2019, not on your 2017 form. Keep detailed records of payment dates to ensure you report in the correct tax year.

Additional Resources

• IRS Form 1099-MISC (2017 version)
• IRS Instructions for Form 1099-MISC (2017)
• IRS Information Return Penalties

This guide provides general information based on 2017 tax law. For specific situations, consult a qualified tax professional or the IRS directly.