What Form 1099-MISC Is For

Form 1099-MISC (Miscellaneous Income) is an IRS information return used by businesses to report various types of payments made during the tax year. In 2018, one of its most important uses was reporting nonemployee compensation in Box 7—payments made to independent contractors, freelancers, and other non-employees for services performed.

Think of Form 1099-MISC as the tax document counterpart to the W-2 form, but for people who aren't on your payroll. If you run a business and hired a graphic designer for your website, paid an attorney for legal advice, or contracted with a plumber to fix your office bathroom, you likely needed to issue a 1099-MISC to report those payments to the IRS.

The form serves multiple purposes beyond nonemployee compensation, including reporting rents (Box 1), royalties (Box 2), other income (Box 3), medical and health care payments (Box 6), and several other payment types. However, for most small businesses in 2018, the primary concern was Box 7: reporting payments of $600 or more to independent contractors and other service providers.

Important historical note: In 2020, the IRS reintroduced Form 1099-NEC (Nonemployee Compensation) as a separate form specifically for reporting nonemployee compensation. For 2018, however, this information was reported on Form 1099-MISC Box 7.

When You’d Use Form 1099-MISC (Late Filing/Amended Returns)

Standard Filing Deadlines

For 2018, the IRS established special deadline rules that distinguished between forms reporting nonemployee compensation and those reporting other types of income. If you reported nonemployee compensation in Box 7, you were required to file Form 1099-MISC with the IRS by January 31, 2019, regardless of whether you filed on paper or electronically. This accelerated deadline was established by federal law to help the IRS combat tax fraud and refund schemes.

For Forms 1099-MISC not reporting nonemployee compensation, the deadlines were later: February 28, 2019, for paper filing or April 1, 2019, for electronic filing. You were also required to furnish a copy (Copy B) to the recipient by January 31, 2019, for most payment types, with some exceptions receiving an extended deadline until February 15, 2019.

Late Filing

If you missed the filing deadline, you could still file late—and you absolutely should, since failing to file at all results in more severe penalties than filing late. The IRS does not have a separate “late filing form”; you simply file the regular Form 1099-MISC as soon as possible after discovering the error.

Late filing penalties for 2018 were tiered based on how late you filed:

• Within 30 days of the deadline: $50 per form (maximum $536,000)
• After 30 days but by August 1: $100 per form (maximum $1,609,000)
• After August 1 or not filed at all: $260 per form (maximum $3,218,500)
• Intentional disregard: $530 per form (or 10% of the income reported if greater), with no maximum penalty

Amended or Corrected Returns

Mistakes happen—you entered the wrong dollar amount, transposed digits in a Social Security number, or accidentally reported the same payment twice. To fix errors on a Form 1099-MISC already filed with the IRS, you file a corrected return.

To file a corrected Form 1099-MISC, you use a fresh copy of the form and check the “CORRECTED” box at the top. Fill in the correct information and resubmit it to the IRS along with a corrected Form 1096 (the transmittal form). Important: Do not check the “VOID” box—that tells the IRS scanning equipment to ignore the form entirely, meaning your correction won't be processed. The IRS generally prefers corrections to be filed within three years of the original filing date.

You must also send a corrected copy to the recipient so they can amend their personal tax return if necessary. There is typically no additional penalty for filing a corrected form if done promptly, though the original penalties for late or incorrect filing may still apply.

Key Rules for 2018

The $600 Threshold

You must file Form 1099-MISC if you paid $600 or more during the 2018 tax year to any individual, partnership, or estate for services performed in the course of your trade or business. This includes payments for parts and materials supplied by the service provider, not just their labor.

Trade or Business Requirement

The reporting requirement applies only to payments made in the course of your trade or business. Personal payments—like hiring someone to paint your home or mow your personal residence's lawn—are not reportable. You're engaged in a trade or business if you operate for gain or profit. Nonprofit organizations, qualified pension plans, certain tax-exempt organizations, and government agencies are also considered engaged in a trade or business for reporting purposes.

Who Must Be Reported

Generally, you report payments to independent contractors and other nonemployees. This includes:

• Professional service providers (attorneys, accountants, architects, contractors, engineers)
• Freelancers and consultants
• Directors receiving fees
• Lottery commission agents
• Anyone receiving prizes and awards for services

Corporate Exemption (With Exceptions)

In most cases, you don't need to report payments to corporations. However, there are critical exceptions:

• Attorneys' fees: You must report payments of $600 or more for legal services to law firms and attorneys, even if they're incorporated
• Medical and health care payments: Must be reported even when paid to corporations
• Fish purchases for cash: Reportable regardless of the payee's structure
• Gross proceeds paid to attorneys: Must be reported in Box 14
• Federal executive agencies: Must report payments to vendors (including corporations) for services

What You Don't Report

You don't report:

• Employee wages (use Form W-2 instead)
• Payments for merchandise, telegrams, telephone, freight, or storage
• Rent payments to real estate agents (though the agent must report payments to the property owner)
• Business travel allowances to employees
• Payments to tax-exempt organizations (with some exceptions)
• Credit card or payment card transactions (reported on Form 1099-K instead)

Backup Withholding

If a contractor doesn't provide their Taxpayer Identification Number (TIN), you're required to withhold a percentage of payments and report this in Box 4. You must file Form 1099-MISC regardless of the payment amount when you've withheld any federal income tax under backup withholding rules.

Step-by-Step Filing Process (High Level)

Step 1: Gather Information Throughout the Year

The easiest way to handle 1099-MISC filing is to collect information as you go. When you hire a contractor or service provider, have them complete Form W-9 (Request for Taxpayer Identification Number and Certification). This form provides their legal name, business name (if different), address, and TIN (Social Security Number or Employer Identification Number). Keep accurate records of all payments made to each contractor throughout the year.

Step 2: Determine Who Needs a 1099-MISC

After the tax year ends, review your payment records and identify everyone who received $600 or more in reportable payments during 2018. Cross-check whether they're subject to the corporate exemption (remembering the exceptions for attorneys, medical providers, and certain other categories). Make a list of all contractors who need to receive a Form 1099-MISC.

Step 3: Obtain or Verify TINs

Confirm that you have a valid TIN for each contractor. The combination of name and TIN must match IRS records exactly, or your filing may be rejected. If you're missing a TIN or it appears incorrect, contact the contractor immediately and request a corrected Form W-9. Consider using the IRS's TIN Matching Service to verify information before filing.

Step 4: Complete the Forms

For each contractor, complete a Form 1099-MISC with:

• Your business information (name, address, TIN) in the payer section
• The contractor's information (name, address, TIN) in the recipient section
• The payment amount in the appropriate box (typically Box 7 for nonemployee compensation in 2018)
• Any federal income tax withheld (Box 4) if backup withholding applied
• An account number if you maintain multiple accounts for the same recipient

You must use official IRS forms or IRS-approved software. You cannot file Copy A with the IRS using forms printed from the IRS website—the IRS must scan paper forms, and home-printed forms aren't compatible with their scanning equipment. You can order official forms from the IRS or use tax software that produces IRS-compliant forms.

Step 5: Distribute Copies to Recipients

By January 31, 2019, provide Copy B of Form 1099-MISC to each contractor. You can mail it, deliver it in person, or in some cases, provide it electronically (with the recipient's consent). Don't wait until the last minute—contractors need this information to file their own tax returns.

Step 6: File with the IRS

Submit Copy A of all Forms 1099-MISC to the IRS by January 31, 2019 (for forms reporting nonemployee compensation). You must also file Form 1096 (Annual Summary and Transmittal of U.S. Information Returns) as a cover sheet if filing on paper. If you're filing electronically, Form 1096 is not required.

If you're filing 250 or more Forms 1099-MISC, electronic filing is mandatory. Even if you file fewer, electronic filing is encouraged because it's faster, more accurate, and you receive confirmation of receipt.

Step 7: Retain Your Records

Keep Copy C (or your software records) for your business files. The IRS recommends retaining these records for at least four years in case of audits or questions about your filing.

Common Mistakes and How to Avoid Them

Mistake #1: Name/TIN Mismatch

The most common error is a mismatch between the contractor's name and their Taxpayer Identification Number. Even a small difference—like “John Smith” versus “John A. Smith” or “Smith Consulting LLC” versus “Smith Consulting”—can cause the IRS to reject your filing or generate penalty notices.
How to avoid it: Use Form W-9 to collect information at the beginning of your working relationship. Have the contractor fill it out themselves rather than you entering information from memory. Double-check that the name matches exactly what's on their tax return. Consider using the IRS TIN Matching Service before filing.

Mistake #2: Misclassifying Employees as Independent Contractors

This is a serious error with significant tax consequences. If you treat an employee as an independent contractor and issue them a 1099-MISC instead of a W-2, you may be liable for employment taxes you should have withheld, plus penalties and interest.
How to avoid it: Understand the difference between employees and independent contractors. Generally, if you control what work is done and how it's done, the worker is likely an employee. When in doubt, review IRS Publication 15-A or consult a tax professional. The IRS provides Form SS-8 that you can submit to get a determination on worker classification.

Mistake #3: Reporting in the Wrong Box

Form 1099-MISC has multiple boxes for different types of income. Reporting nonemployee compensation in Box 3 (Other Income) instead of Box 7, or vice versa, affects how the IRS processes the income and may confuse the recipient.
How to avoid it: Carefully read the instructions for each box. In 2018, most payments for services went in Box 7 (Nonemployee Compensation). Box 3 is for specific types of other income like prizes not for services, certain damage payments, and Indian gaming profits. When in doubt, consult the detailed IRS instructions for each box type.

Mistake #4: Missing the Accelerated Deadline

Many businesses got caught off guard by the January 31 deadline for Forms 1099-MISC reporting nonemployee compensation. Previously, paper filers had until the end of February, leading some to miss the earlier deadline.
How to avoid it: Mark your calendar for January 31 as the deadline for both sending forms to recipients and filing with the IRS when Box 7 contains any amount. Start your 1099 preparation in early January rather than waiting until the last week. Consider electronic filing, which is faster and provides confirmation of receipt.

Mistake #5: Forgetting Backup Withholding

If a contractor fails to provide a TIN or the IRS notifies you that the TIN is incorrect, you're required to begin backup withholding at the current rate. Failing to withhold and remit these amounts creates liability for your business.
How to avoid it: Request Form W-9 before making any payments. If a contractor refuses or fails to provide a TIN, start backup withholding immediately and deposit the withheld amounts according to IRS schedules. Report the withholding in Box 4 of Form 1099-MISC. Keep documentation of your attempts to obtain the TIN.

Mistake #6: Incorrect Reporting of Payments to Corporations

Many businesses incorrectly assume they never need to report payments to corporations. While the corporate exemption is broad, the exceptions (attorneys, medical providers, federal contractors, fish purchases) catch many filers by surprise.
How to avoid it: Memorize the key exceptions to the corporate exemption. When working with attorneys or medical providers, always plan to issue a 1099-MISC regardless of their corporate status. When in doubt about other service providers, it's generally better to file a 1099-MISC than to risk penalties for not filing.

Mistake #7: Using Photocopied or Downloaded Forms

The IRS uses specialized scanning equipment to process paper Forms 1099-MISC. Forms downloaded from the IRS website or photocopied from previous years won't scan properly and will be rejected.
How to avoid it: Order official forms from the IRS (call 1-800-TAX-FORM) or purchase them from office supply stores. Better yet, use IRS-approved tax software that produces scannable forms or file electronically, which eliminates this concern entirely.

What Happens After You File

IRS Processing

Once you file Forms 1099-MISC, the IRS processes the information and matches it against the tax returns filed by the contractors. This matching program helps the IRS identify unreported income. The process typically takes several months.

Recipient Filing

The contractors and service providers you paid should report the income on their tax returns. Nonemployee compensation from Box 7 is generally reported on Schedule C (Profit or Loss from Business) if they're self-employed, or Schedule F for farmers. The income is subject to self-employment tax, which covers Social Security and Medicare contributions.

If the IRS Finds a Discrepancy

If the IRS's computer systems detect that a contractor didn't report income that you reported on Form 1099-MISC, the IRS may send the contractor a notice asking about the unreported income. This is why accurate reporting is essential—you want to avoid putting your contractors in the position of having to explain discrepancies.

If You Made an Error

If you discover an error after filing, you have three options:

• Correct it immediately: File a corrected Form 1099-MISC as described earlier. The sooner you correct errors, the less likely penalties will apply.
• Wait for an IRS notice: If the error is minor (such as small dollar differences within the IRS's de minimis safe harbor), the IRS may not assess a penalty.
• Request penalty abatement: If you receive a penalty notice but have reasonable cause for the error, you can request that the IRS waive the penalty.

Penalty Notices (CP2100 and CP2100A)

If there are TIN mismatches, the IRS will send you a CP2100 or CP2100A notice listing accounts with problems. You're required to solicit corrected information from the affected contractors. If you receive two notices within three years for the same contractor, you must begin backup withholding on future payments.

Audits and Records Retention

Keep your Forms 1099-MISC (Copy C) and supporting documentation for at least four years. If the IRS audits your business, they'll want to verify that you correctly reported all required payments. Having organized records of contractor agreements, Forms W-9, and payment documentation will make any audit much smoother.

State Filing

Don't forget about state requirements. Many states require businesses to file copies of Form 1099-MISC with the state tax agency. Requirements vary by state, so check with your state's department of revenue.

FAQs

1. Do I need to issue a 1099-MISC if I paid a contractor exactly $600, or only if I paid more than $600?

You must issue a 1099-MISC if you paid $600 or more. The “or more” includes exactly $600. If you paid $599.99, no form is required (though the contractor still must report the income). If you paid $600.00 or $600.01 or any amount above, you must file.

2. I paid a contractor through PayPal or a credit card. Do I still need to file a 1099-MISC?

Generally, no. Payments made through credit cards, debit cards, or third-party payment networks like PayPal are reported on Form 1099-K by the payment processor, not by you. However, there's an exception: if you paid the contractor partly through a payment card and partly through other means (like cash or check), and the non-payment-card portions total $600 or more, you must report those amounts on Form 1099-MISC.

3. What if my contractor refuses to give me their Social Security Number or TIN?

Request it in writing and document your request. If they refuse, you're required to begin backup withholding from their payments (withholding a percentage of each payment and remitting it to the IRS). You must still file Form 1099-MISC, showing the gross payments and the backup withholding amount. You can enter “Applied for” in the TIN field if the contractor has applied for a TIN but hasn't received it yet, but you must obtain the TIN within 60 days.

4. I accidentally issued a 1099-MISC to someone who didn't need one. What should I do?

File a corrected Form 1099-MISC showing zero in all boxes. Check the “CORRECTED” box at the top of the form. Send it to the IRS and to the recipient. Also send an explanation letter to the recipient informing them that the original form was issued in error and they should disregard it. Keep documentation of the correction in case of future questions.

5. Can I e-file my Forms 1099-MISC, and should I?

Yes, you can e-file, and it's strongly encouraged. Electronic filing is faster, more accurate, and you receive confirmation when the IRS accepts your filing. If you're filing 250 or more forms, electronic filing is mandatory. To e-file, you need IRS-approved software or you can use the IRS's Filing Information Returns Electronically (FIRE) system. The e-file deadline for 2018 Forms 1099-MISC was April 1, 2019 (March 31, 2019, for forms reporting nonemployee compensation).

6. What's the difference between an independent contractor and an employee, and why does it matter?

The difference is crucial because employees receive W-2s and have taxes withheld from their paychecks, while independent contractors receive 1099-MISCs and pay their own taxes. The IRS uses three categories to determine worker status: behavioral control (do you direct how the work is done?), financial control (do you control business aspects of the job?), and the relationship type (contracts, benefits, permanency). Misclassifying employees as contractors can result in owing back taxes, penalties, and interest. When in doubt, file Form SS-8 with the IRS for a determination, or consult a tax professional.

7. My contractor works under a business name but I pay them personally. Whose name and TIN do I use?

Use the name and TIN shown on their Form W-9. If they're a sole proprietor doing business as (DBA) a business name, their Form W-9 should show their legal name (individual name) and Social Security Number. You can show the business name on the second line (“DBA [Business Name]”). The key is matching exactly what they'll use on their tax return. Never guess—always use the Form W-9 information.

Resources

• IRS Form 1099-MISC Information
• 2018 Instructions for Form 1099-MISC (PDF)
• 2018 Form 1099-MISC (PDF)

This guide specifically covers 2018 requirements. Tax laws and forms change over time. For current year filing, always consult the latest IRS forms and instructions.