Understanding Form 1099-MISC. What is it? Things to Know

If you have a business, tax firm, or any outlet, you are required to file your taxes irrespective of the nature of business. Similarly, the Internal Revenue Service (IRS) requires you to file payment sources through forms 1099-MISC and 1099-NEC. The form 1099-MISC allows you (employee) to report miscellaneous income and compensation not included in your 1099-NEC report. At the same time, 1099-NEC allows non-employee compensation to be reported.

 

Did you know? Form 1099-MISC is for employee compensation reporting and Form 1099-NEC is for non-employee compensation reporting. Before the tax year of 2020, the same form 1099-MISC was used for both employee and on-employee (contract) compensation reporting.

In this blog, we will understand what the 1099-MISC form is and who can use it. We will also see how the form looks. 

What is Form 1099-MISC?

Form 1099-MISC stands for miscellaneous information and is a type of form used for tax purposes. It is a form issued by the Internal Revenue Service (IRS) to report certain income and compensation while filing taxes. The compensation could be in the form of prizes, healthcare payments, rents, royalties, attorney fees, and awards.

 

The 1099-MISC form is designed for employees who work in businesses and firms. Non-employees who work on a contract and freelance basis, must use the form 1099-NEC to report their income and compensation. The form is primarily used by employees and companies that have been paid $ 600 or more in miscellaneous income. 

This is How The Form 1099-MISC Looks

This is the form 1099-MISC designed by the IRS. Each block is fillable with the required compensation. For example, compensation from rent, prizes, royalties, and more. These 1099 misc forms are printable from the IRS website.

Source: IRS website (Download the 1099-MISC Form) (PDF)

You can access the instructions for 1099 misc forms printable here. (Instructions for Form 1099-MISC & 1099-NEC) (PDF)

Remember:

• The red copy A of 1099-MISC form is not printable. The red form is for IRS use only. 
• The black version of the form is available for everyone. Anyone can fill, complete, print, and download it. 
• The copy of the black printable form also goes to:
  • Copy 1 goes to the concerned state tax department.
  • Copy B is sent to the concerned recipient.
  • Copy 2 is sent to the concerned recipient for state tax return filings
  • Copy C is kept for record keeping by the payer. 

What are the Payments That Can be Reported Using IRS Form 1099-MISC?

There are certain types of payments, compensation that can only be reported using the IRS 1099-MISC form. The list is included only when the compensation is $ 600 and above. Even if you have received royalties and brokering above $ 10, you will need to report using this form. 

 

• Any type of rent received.
• Other income payment receivables.
• Any healthcare and medical payments.
• Payments from prizes and awards.
• Payments from royalties.
• Payment from crop insurance.
• Any payments made to attorneys.
• Any payments from fishing and boating.
• Any payment proceeds from the principal contract to the partnership, estate, or individuals. 
• Any type of cash payment made for a fishery or any aquatic activities in the form of trade or commerce. 
• You can also use Form 1099-MISC to report sales payments of consumer products of $ 5000 and above, but other than a permanent retail establishment
• Any other services as may be defined by the IRS or come under the form. 

Who Can File Form 1099-MISC?

• If you are a contractor or freelancer. 
• Landlords are required to file using the 1099 form.
• Any individual or firm that has withheld federal income tax should report using the form. 
• Any business or individual that has made any payment in the course of trade or business, except for non-employee compensation. 

Table of Differences Between Form 1099-MISC & Form 1099-NEC

Form 1099-MISC	Form 1099-NEC
Not subject to self-employment tax	Subject to self-employment tax
Records individuals’ miscellaneous income over $ 600	Records individuals’ miscellaneous income over $ 600 made to non-employees.
Records payments for rent, healthcare, attorney, prizes, and royalties.	Records payments made to non-employees like freelancers, contractors, self-employed individuals, and consultants.
Records & reports direct sales of consumer products of $ 5000 or more.	NA

Concluding Thoughts

If you are an individual who files federal income tax, then it is necessary to report income through the form 1099-MISC. While for non-employed, contractual, freelance, and consultants, they need to report using form 1099-NEC. 1099-MISC is used to file and report payments from rent, prizes, royalties, attorney fees, and healthcare payments. The form 1099-MISC is only required to be filled if you receive payment of $ 600 or above. Also, if the royalty payment is above $ 10, you will need the same form. The 1099 form is printable from the IRS website. There are two types of 1099 forms. One is the red copy A and the other is a black copy. The red one is for IRS use only, while the black copy can be filled, downloaded, and printed. 

FAQs (Frequently Asked Questions)

What is the Form 1099-MISC used for?

Form 1099-MISC is used to report miscellaneous payment information. The payment could be in the form of rent, awards, prizes, medical, and royalties payments. 

Who should get a 1099-MISC form?

Anyone who has paid $ 10 or more in royalties or who has paid $ 600 or above in miscellaneous income. In this case, you are likely to receive the Form 1099-MISC. 

How much tax do you pay on a 1099-MISC?

An income above $ 400 can receive a fixed tax rate of 15.3% from the IRS. (12.4% of social security plus 2.9% of healthcare). 

How do I report a 1099-MISC on my tax return?

You can report the amount using the Form 1099-MISC. (Box 3, Schedule 1). Moreover, you can visit the IRS website for the printable form and instructions to report payments using the form.

Is 1099-MISC proof of income?

The main role of Form 1099  is to report miscellaneous income under different heads in the form. 

How does a 1099 affect my taxes?

Depending on the type of income you received over the year. You will need to report using 1099 forms under each head box. According to the income, you know your actual taxable income.