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IRS Form 1099-MISC & Form 1099-NEC

If, as part of your trade or business, you made any of the following types of payments, you are required by law to report certain payments of income it made during the calendar year to the IRS and to the recipient by filing Form 1099-MISC or Form 1099-NEC.

The following types of payments made in the course of business when paid to individuals, partnerships, single member limited liability companies, and limited liability companies taxed as partnerships must be reported on Form 1099-MISC if they aggregate to $600 or more ($10 or more for royalties) during the calendar year:

Rents (Box 1)

  • Equipment and machines rentals
  • Office rent unless paid to a real estate agent or property manager that is not the property owner
  • Renting booths or tables
  • Renting parking spaces
  • Renting boats, cars, buses, etc.

Royalties (Box 2)

  • Industrial, Literary, Patents

Other income (Box 3)

  • Prizes and awards that are not for services performed. (Include the fair market value of merchandise won if given in
    lieu of a cash award.)
  • Research subject payments
  • Certain litigation settlements (not paid to attorneys/law firms which are reportable in Box 10)

Fishing Boat Proceeds (Box 5)
Medical and health care payments (Box 6)
IMPORTANT NOTE! Payments of medical and healthcare payments must also be reported if paid to C and S corporations.

  • Hospital (Private) fees and charges
  • Doctor or Physician Assistant Fees
  • Payments for Examinations
  • Payments for Medical tests
  • Payments to dentists/dental assistants

Crop Insurance Proceeds (Box 9)
Gross Proceeds Paid to an Attorney (Box 10) – Only report on Form 1099-MISC, the payments made to an attorney or law firm for a legal settlement but do not include payments for attorney services which are reportable in Box 1 of Form 1099-NEC.

Example, Company A agrees to pay punitive damages of $10,000 to a law firm representing the claimant.  Company A hired an attorney from a local law form to present Company A during the mediation of this case.  The lawyer’s fee for her legal representation services was $1,000.  The total punitive damages of $10,000 would be reported in Box 10 of Form 1099-MISC and the lawyer’s fee for services of $1,000 would be reported in Box 1 of Form 1099-NEC.

IMPORTANT NOTE! Gross proceeds paid to an attorney or law firm must also be reported if paid to C and S Corporations.

Section 409A deferrals (Box 12)
Nonqualified deferred compensation (Box 15)

The following types of payments for SERVICES rendered by non-employees in the course of business must be reported on Form 1099-NEC if they aggregate to $600 or more during the calendar year and are paid to individuals, partnerships, single member limited liability companies, and limited liability companies taxed as partnerships:

Non-employee compensation (Box 1):

o   Includes payments for services performed in the course of business by individuals or entities that are not employed by your company.

o    Non-employee expense reimbursements for service providers are only includible in the reportable payment if the expense is not reimbursed in accordance with your companies accountable plan.  For example, if your company agrees to pay a fixed amount for expected travel expenses but does not require the service provider to substantiate the travel expenses incurred with actual receipts, then the travel allowance will be includible in the reportable payment.

Examples of reportable non-employee compensation payments:

  • Professional service fees paid to attorneys (reporting includes C and S Corporations)
  • Professional fees paid to accountants, architects, business consultants, etc.
  • Payments made to customize merchandise or awards. This is deemed as a purchase of a service.
  • Payment for services, including the cost of incidental parts or materials used to perform those services.
  • Payments to non-employee entertainers or performers.
  • Honorariums or payments to guest lecturers.
  • Maintenance and repairs to office machines, buildings, and equipment.
  • Maintenance to lawn or vehicle.
  • Notary fees for a notary to notarize a document or payment for an employee to become a notary.
  • Payments to instructors, teachers, trainers, training groups, choir directors, minister service, piano players, entertainers, speakers, legal adjudicators, and witness fees. This includes companies who administer tests.
  • Privately owned colleges and privately owned universities.
  • Note: Go to website http://www.univsource.com to determine if a college or
    university is public or private.

Common payments that are NOT required to be reported on either Form 1099-MISC or Form 1099-NEC:

o    Payments to C and S Corporations including LLCs that are taxed as C or S Corporations (with the exception of medical/health care payments, legal fees and proceeds paid to an attorney)

o    Payments to tax-exempt organizations including: tax-exempt trusts, U.S. government, a U.S. state or U.S. possession

o    Payments to foreign individuals, entities, and foreign governments (see Form 1042-S reporting requirements)

o    Payments for freight, inventory, merchandise, storage, or utilities

o    Wages, expense reimbursements or allowances paid to employees including back-pay (report on form W-2)

o    Scholarships or fellowships made to U.S. tax residents are not reportable on Form 1099-MISC but they may still be taxable to recipients.  Note: Scholarships or fellowships that are given in exchange for services to be rendered to the University should be reported as wages on Form W-2.

Do not report the following if any of the payments below apply.

  • Credit or travel card payments. Effective tax year 2011 – local banks issue IRS forms 1099-K for credit card and travel card payments.
  • Merchandise, products, or goods.
  • Reimbursements to federal or military employees such as uniform allowance and firefighting gear.
  • Permanent Change of Station (PCS) damage claims.
  • Bank fees.
  • Stamps, Postage.
  • Federal tax-exempt organizations/agencies such as the Boy Scouts or Red Cross. To verify an organization’s exempt status use the IRS Exempt Organization Select Check at http://apps.irs.gov/app/eos/ or ask them to provide a copy of their IRS ruling or determination letter (tax-exempt status letter) they received from the IRS and what states they have been approved to be federal tax exempt.  If they cannot provide the IRS ruling or determination letter, then report.
  • Government agencies (federal, state, city, county, parish).
  • State owned (funded) State colleges, community colleges, universities, high schools, and grade schools.
  • Hospitals owned and operated by the United States, State, or the District of Columbia and any of their subdivisions.
  • Utilities such as electric, gas, water, fuel oil, coal, bottled gas, and other fuels. Telephone and cell phone services and cable.
  • Delivery services such as Federal Express, UPS, DHL, and all related small package transportation services.
  • Safety deposit box – considered storage.
  • Moving and Warehouse Storage – considered storage.
  • Magazine or newspaper subscriptions.
  • Attorney License.
  • Internet/computer renewal license.
  • Payment to a company to be bonded or insurance premiums
  • Federal tax-exempt organization memberships to clubs, organizations and societies such as ASMC or AGA.
  • Informer payments for information about criminal activity.

A best practice during the year is to have a new vendor complete Form W-9 at the time an invoice is received and before payment is made to be sure you have the proper information on file to prepare the 1099 forms at the end of that year!

If you have any questions, or need further information, please contact your trusted TBC advisor or someone in our Partnered Accounting Solutions department.