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How to Fill Out a 1099: Instructions

January 13, 2020

How to Fill Out a 1099: Instructions

The first of the year can be a busy time for businesses. It’s expected that considerable focus will be on setting new goals, developing new products, and putting fresh eyes on the day to day processes of the company. While looking forward to what’s ahead, it’s equally as important to wrap up the year that’s just finished. You’ll need to know how to fill out a 1099.

One of the first deadlines a business faces is filing 1099s with the IRS and providing copies to the independent contractors who provided services to the business. But many people struggle with the complexities of how to do a 1099 tax form. The quick turnaround time between the end of the year and the January 31st deadline for filing the forms is less concerning with a good set of 1099 instructions, and that’s where I can help. If you’re wondering, “How do I fill out a 1099 form?” you’ve come to the right place.

 

Beginning with tax year 2020, nonemployee compensation will no longer be reported in Box 7 of the 1099-MISC form. Instead, all nonemployee compensation must now be reported on a separate Form 1099-NEC. If you pay an independent contractor nonemployee compensation, you must separate nonemployee compensation payments from all of your other Form 1099-MISC payments. Click here to learn more, or buy 1099-NEC forms here.

 


 

1099

Types of 1099s

Understanding the type and purpose of the 1099 form you’re filing is the first consideration. The sixteen different versions are used by businesses and governments large and small, but the most common version is the 1099-MISC. The other types of 1099s (used for things such as interest, dividends, retirement distributions, and tax refunds) are described on the IRS website


 

How to Fill Out 1099-MISC

The good news about the eighteen boxes on a 1099-MISC is that, most likely, only a few of them will be applicable in any given situation. We’ll take it one box at a time.

Payer and Recipient Information Boxes

You, the person filling out this 1099, are the payer. Your name, address, and tax identification number (TIN) are the first boxes on the form. Following those boxes is the same information for the recipient.

 

Tip: A good practice is to require your 1099 recipients to fill out a Form W-9 prior to you paying them anything. The form collects all the information you’ll need to make sure you send the 1099 to the right place and on time at the end of the year.

 

How to Fill Out 1099 Forms, Box by Box
Box 1 - Rents Box one on form 1099-MISC reports the amount you paid to the recipient for rent. Examples of applicable arrangements include rentals of office space, machinery, and land.
Box 2 - Royalties

Box two is for payments of royalties such as for mineral rights or intangible property (copyrights, trade names, etc.).

Note: The minimum amount reportable under box two is decreased from the typical $600 threshold to only $10.

Box 3 - Other Income As is typical for IRS forms, the 1099-MISC includes a catch-all box for any other income that is not reportable elsewhere on the form. Income items that may be reported in box three include prizes and awards, a deceased employee’s wages, payments made to individuals in medical research studies, and damages paid from the result of a lawsuit.
Box 4 - Federal Income Tax Withheld
If the recipient has not provided their TIN to you, their earnings are subject to backup withholding. Backup withholding is a method the IRS uses to attempt to decrease instances of unreported income, as the withholding process for nonemployees is complicated and unfavorable for everyone involved. They would much rather you get the correct personal information from the recipient and report the amount they were paid, gross of any applicable taxes. But if you have recipients for whom you’ve withheld federal income tax, that amount is reported in box four.
Box 5 - Fishing Boat Proceeds

Proceeds from the sale of a catch on a fishing boat with normally fewer than 10 crew members belong in box ten.

Box 6 - Medical and Health Care Payments

Box six reports payments made by a business to a physician or other medical service provider. Payments to pharmacies for prescription drugs are not required to be reported.

Box 7 - Non-employee Compensation

This is the box most often used on form 1099-MISC. Box seven reports payments made to nonemployees for services they provide to your business. The minimum reportable amount is the standard threshold of $600, and payments made to corporations are generally not required to be reported.

Note: 2019 is the last tax year in which nonemployee compensation will be reported on 1099-MISC. Beginning in tax year 2020, a new form, 1099-NEC, will be required to report these payments.

    Box 8 - Substitute Payments in Lieu of Dividends or Interest

    The payments reportable in box eight are those made to a broker for a customer as a result of a loan on the customer’s securities. The payments are made as a substitute for dividends or tax exempt interest which accrued while the securities were on loan. The minimum reportable amount for this box is $10.

    Box 9 - Payer Made Direct Sales of $5000 or More

    The checkbox in box nine should be marked if you sold $5,000 or more of consumer products to the recipient on a commission basis for resale. No dollar amount is required in this box.

    Box 10 - Crop Insurance Proceeds

    Insurance companies who pay $600 or more in insurance proceeds to farmers report this amount in box ten.

    Box 11 Not in use
    Box 12
    Not in use
    Box 13 - Excess Golden Parachute Payments

    The payments referred to in the box are those made to a person who is an owner, officer, or highly compensated individual during a change in ownership of the company. The excess amount is calculated as the amount which exceeds the average of the individual’s past five years base compensation.

    Box 14 - Gross Proceeds Paid to an Attorney

    Report amounts of $600 or more paid to an attorney for legal services.

    Box 15a - Section 409A Deferrals

    This box reports the total amount deferred for a nonemployee under a nonqualified deferred compensation plan.

    Box 15b - Section 409B Income

    This box reports the earnings on the amount in Box 15a.

    Box 16-18 - State Information

    Payers using the Combined Federal/State Filing Program use these boxes. They do not need to be completed for the IRS copies, and they may be used for up to two states. Check out 1099 Tax Filing Requirements According to Your State.

     

     Send Them Out!

    The final step in our form 1099 instructions is getting them out the door! Here are some great resources for how to file the forms you’ve just completed:

     


     

    For more information about taxes, check out the Blue Summit Supplies blog. Or if you just want to see what we’re up to (and who wouldn’t?), follow us on Twitter, Facebook, and Instagram. And, as always, feel free to reach out with any questions or comments– Larry loves to hear from you!

     

    ABOUT THE AUTHOR

    Elizabeth Plasters is a CPA working on her own and trying to help people along the way. She is passionate about partnering with small to mid-size businesses to unveil their potential through financial literacy and competency. When employing the right hemisphere of her brain, she may be found playing her guitar, playing with her dogs, or both.


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