Form 1099-MISC | 2020 Tax Year
Purpose
Form 1099-MISC reports miscellaneous income to recipients and the IRS. For the 2020 tax year, the form underwent a significant redesign due to the creation of Form 1099-NEC. Box numbers were rearranged, and specific income types were reassigned to ensure proper reporting and compliance with IRS requirements.
Filing Requirements
You must file Form 1099-MISC for each person in the course of your trade or business to whom you paid during the year:
- At least $10 in royalties or broker payments instead of dividends or tax-exempt interest
- At least $600 in rents, prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, payments to an attorney, fishing boat proceeds, or substitute payments instead of dividends or interest
- Any amount for Section 409A deferrals or nonqualified deferred compensation
Personal payments are not reportable. Only payments made in the course of your trade or business require reporting.
Step-by-Step Filing Checklist
Step 1: Verify Payer and Recipient Information
Ensure your Federal Employer Identification Number (EIN) is correct and matches IRS records. Obtain and verify the recipient’s Taxpayer Identification Number (TIN) using Form W-9. Enter TINs in the proper format: SSNs, ITINs, and ATINs as XXX-XX-XXXX; EINs as XX-XXXXXXX. Incorrect TINs may subject you to penalties and require backup withholding.
Step 2: Obtain Official Scannable Copy A Forms
Order official IRS-printed Copy A forms for filing with the IRS. The scannable Copy A printed by the IRS uses special red ink that scanning equipment can read. Do not print Copy A from the IRS website, as these copies are not scannable and may result in filing penalties. Order official forms at IRS.gov/EmployerForms or by calling 800-TAX-FORM. Copies B, C, 1, and 2 may be printed from the IRS website for furnishing to recipients.
Step 3: Report Rents in Box 1
Enter rental payments of $600 or more in Box 1. Include real estate rentals for office space, machine rentals, pasture rentals, and coin-operated amusement arrangements when structured as leases. If you paid rent to a real estate agent or property manager, you are not required to report it, but the agent or manager must report payments made to the property owner. Report rental income on Schedule E unless you provided significant services to the tenant, sold real estate as a business, or rented personal property as a business activity, in which case report on Schedule C.
Step 4: Report Royalties in Box 2
Enter gross royalty payments of $10 or more in Box 2. Include royalties from oil, gas, or mineral properties before reduction for severance and other taxes. Report royalties from intangible property such as patents, copyrights, trade names, and trademarks. Do not include surface royalties, which belong in Box 1. Do not report oil or gas payments for a working interest in Box 2; these should be noted in Box 1 of Form 1099-NEC. Literary agents must report gross royalties to authors regardless of whether the publisher reported the payment to the agent.
Step 5: Report Other Income in Box 3
Enter other income of $600 or more not reportable in different boxes. Include prizes and awards not for services performed, such as sweepstakes winnings and game show prizes. Report the fair market value of merchandise won. Include payments to deceased employees’ estates or beneficiaries, payments to Indian tribal members from gaming revenues, termination payments to former self-employed insurance salespeople meeting specific criteria, damages for nonphysical injuries or sickness, and medical research study payments. Do not report employee prizes or awards in Box 3; these belong on Form W-2.
Step 6: Report Federal Income Tax Withheld in Box 4
Enter backup withholding amounts when recipients fail to provide their TINs or the IRS notifies you of an incorrect TIN. Backup withholding applies to payments in Boxes 1, 2, 3, 5 (cash portion), 6, 8, 9, and 10. Also, enter income tax withheld from payments to Indian tribal members from gaming revenues. The backup withholding rate and requirements are specified in the General Instructions for Certain Information Returns.
Step 7: Report Fishing Boat Proceeds in Box 5
Enter each crew member’s share of all proceeds from the sale of a catch or the fair market value of distributions in kind for fishing boats with normally fewer than 10 crew members. Include cash payments up to $100 per trip that are contingent on a minimum catch and paid for additional duties such as mate, engineer, or cook, where such payments are traditional in the industry. The amount in this box indicates that the fishing boat operator considers the recipient self-employed. Do not report wages reportable on Form W-2 in this box.
Step 8: Report Medical and Health Care Payments in Box 6
Enter payments of $600 or more made to physicians or other suppliers or providers of medical or health care services. Include payments made by medical and health care insurers under health, accident, and sickness insurance programs. If payment is made to a corporation, list the corporation as the recipient. Report the entire payment, including charges for injections, drugs, dentures, and similar items. The exemption for payments to corporations does not apply to payments for medical and healthcare services. Do not report payments to pharmacies for prescription drugs or to tax-exempt hospitals.
Step 9: Check Box 7 for Direct Sales
Check Box 7 if you made direct sales of $5,000 or more of consumer products to a person on a buy-sell, deposit-commission, or other commission basis for resale anywhere other than a permanent retail establishment. Do not enter a dollar amount in this box; only check the checkbox. The statement you provide to the recipient does not need to be on the official form and may be in a letter format, showing this information along with commissions, prizes, and awards.
Step 10: Report Substitute Payments in Box 8
Enter aggregate payments of at least $10 of substitute payments received by a broker for a customer instead of dividends or tax-exempt interest as a result of a loan of the customer’s securities. A substitute payment means a payment instead of a dividend or tax-exempt interest to the extent interest has accrued while securities were on loan. File Form 1099-MISC with the IRS and furnish a copy to the customer for whom you received the substitute payment.
Step 11: Report Crop Insurance Proceeds in Box 9
Enter crop insurance proceeds of $600 or more paid to farmers by insurance companies unless the farmer has informed the insurance company that expenses have been capitalized under section 278, 263A, or 447. Recipients typically report crop insurance proceeds on Schedule F.
Step 12: Report Gross Proceeds Paid to Attorneys in Box 10
Enter payments of $600 or more made to an attorney in connection with legal services. Report gross proceeds paid to attorneys that are not for the attorney’s own services, such as settlement payments. The exemption for payments to corporations does not apply to legal services. You must report attorneys’ fees or gross proceeds to corporations that provide legal services. Generally, you are not required to report the claimant’s attorney’s fees paid from settlement funds.
Step 13: Complete Section 409A Boxes (Optional)
Box 12 is optional. If you choose to complete Box 12, enter the total amount deferred during the year of at least $600 for the nonemployee under all nonqualified deferred compensation plans, including earnings on current and prior year deferrals. Box 14 must be completed if nonqualified deferred compensation fails to satisfy Section 409A requirements. Enter all amounts deferred that are includible in income under Section 409A because the plan fails to meet requirements. The amount in Box 14 is also includible in Box 1 of Form 1099-NEC. Amounts in Box 14 are subject to regular income tax plus a 20% additional income tax and penalty interest.
Step 14: Complete State Tax Information in Boxes 15–17
Use Boxes 15, 16, and 17 if you participate in the Combined Federal/State Filing Program or are required to file paper copies with a state tax department. Box 15 reports state income tax withheld, Box 16 shows the state identification number and abbreviated state name, and Box 17 shows the amount of state income. These boxes accommodate information for up to two states separated by the dashed line. This information is provided for your convenience and to meet state reporting requirements.
Step 15: Furnish Statements to Recipients by Required Deadlines
Furnish Copy B to recipients by January 31, 2021, for most payments. If you report payments in Box 8 (substitute payments) or Box 10 (gross proceeds paid to attorneys), the due date is automatically February 16, 2021. You may furnish a single payee statement reporting all Form 1099-MISC payment types. Statements may be furnished electronically if the recipient consents. The statement must include the same information provided to the IRS and provide instructions on where recipients should report the income on their returns.
IRS Filing Deadlines
File Copy A with the IRS by March 1, 2021, if filing on paper, or by March 31, 2021, if filing electronically. Section 6071 requires different deadlines for Form 1099-NEC, which must be filed by February 1, 2021. Electronically filed forms must follow specifications in Publication 1220. Extensions of time to file may be requested using Form 8809; however, automatic extensions are not available for forms reporting non-employee compensation.
Key Changes for 2020
The most significant change for 2020 is the redesign of Form 1099-MISC, which is due to the creation of Form 1099-NEC for reporting non-employee compensation. Box numbers were rearranged as follows:
- Box 7 now reports direct sales of $5,000 or more (checkbox only, no dollar amount)
- Box 9 reports crop insurance proceeds (previously Box 6)
- Box 10 reports gross proceeds paid to attorneys (previously Box 14)
- Box 12 reports Section 409A deferrals (optional reporting)
- Box 14 reports non-qualified deferred compensation failing Section 409A requirements
- Boxes 15–17 report state tax information
Nonemployee compensation previously reported in Box 7 of Form 1099-MISC is now reported on the new Form 1099-NEC. Form 1099-NEC has an accelerated filing deadline of February 1, 2021, to both the IRS and recipients.
Common Reporting Exceptions
Do not use Form 1099-MISC to report payments to corporations except for medical and health care costs in Box 6, gross proceeds to attorneys in Box 10, and substitute payments in Box 8. Do not report payments for merchandise, telegrams, telephone, freight, storage, and similar items. Employee wages, benefits, and reimbursements belong on Form W-2, not Form 1099-MISC. Payments to tax-exempt organizations, government entities, and foreign governments are not required to be reported. Scholarship and fellowship grants have special reporting rules and generally do not require Form 1099-MISC unless they represent compensation for services.
Electronic Filing Requirements
Businesses must file electronically if they are required to file 250 or more information returns during the calendar year. Electronic filing uses the FIRE (Filing Information Returns Electronically) system or IRS-approved software. See Publication 1220 for technical specifications and formatting requirements. Electronic filing allows a later deadline of March 31, 2021, compared to the March 1, 2021, deadline for paper filing.
Penalties for Noncompliance
Failure to file correct information returns by the due date may result in penalties. Penalties vary based on how late you file and the size of your business. Intentional disregard of filing requirements results in higher penalties. Filing forms that cannot be scanned by IRS equipment, including Copy A forms printed from the IRS website, may result in penalties. Failure to furnish correct payee statements to recipients also results in separate penalties. Backup withholding penalties apply when you fail to withhold after notification of an incorrect or missing TIN.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
