Who is supposed to get a 1099?

In many cases, the tax law requires businesses to report to the IRS payments they have made to subcontractors, attorneys, architects and other service providers.

 

Form 1099-NEC, Non-employee Compensation

Note: This form replaces Form 1099-MISC for reporting certain payments beginning in calendar year 2020. Prior to 2020 the following information is applicable to Box 7 on Form 1099-MISC.

Payments of $600 or more for services performed by persons not treated as employees, such as fees to subcontractors, attorneys or accountants. Some examples include:

  • Professional service fees, such as fees to attorneys, accountants, architects, contractors and engineers.

  • Fees paid by one professional to another, such as fee-splitting or referral fees.

  • Payment for services, including payment for parts or materials used to perform the services if supplying the parts or materials was incidental to providing the service.

  • Commissions paid to non-employee salespersons that are subject to repayment but not repaid during the calendar year.

  • Fees paid to non-employees, including travel reimbursements for which the persons did not account to the payer, if the fee and reimbursement total at least $600.

  • Payments to non-employee entertainers for services.

  • Exchanges of services (bartering) between individuals in the course of their trades or businesses. 

 

Generally payments reported on Form 1099-NEC are subject to self-employment tax by the recipient. (And likely New Mexico gross receipts tax.) If the payments are not subject to self-employment tax, the third-party payer should report them as on Form 1099-MISC as Other Income in Box 3.

Exceptions

 

Payments on Forms 1099-NEC and 1099-MISC do not have to be reported if the business pays:

  • By credit card or payment card and certain other types of payments, including third-party network transactions such as PayPal, Google Pay and Apple Pay.

  • A corporation, for merchandise, telephone, freight, storage and similar items; of rent to a real estate agent

  • A tax-exempt organization

  • The United States, any individual state, the District of Columbia, a U.S. possession or a foreign government

Form 1099-MISC

Form 1099-MISC, Miscellaneous Income, is most commonly used by third-party payers to report payments made in the course of a trade or business to others for services. Third-party payers should report the following on Form 1099-MISC:

  • Rent payments of $600 or more

  • Prizes and awards of $600 or more that are not for services, such as TV show winnings

  • Royalty payments of $10 or more

  • Payments to certain crew members by operators of fishing boats

  • Sales of $5,000 or more of consumer products to a person for resale anywhere other than in a permanent retail establishment

  • Any payments from which federal income tax has been withheld under backup withholding rules

When to file

Third-party payers must provide a copy of the applicable form to the payee on or before Jan. 31 following the end of the tax year. The payer must also file Forms 1099-NEC by January 31 and Forms 1099-MISC with the IRS by Feb. 28 (March 31, if filing electronically).