We get questions quite often from clients as to whether they need to issue a 1099 to someone and what are the rules for issuing 1099’s so I thought I’d go over that subject a little. Form 1099 is used to report different types of taxable income. There are several types of 1099’s. The letters listed behind the 1099 indicate what type of form it is. The IRS requires taxpayers to issue 1099’s in order to encourage other taxpayers to recognize income and comply with filing requirements.
• Form 1099-B reports the sale of stocks, bonds, mutual funds and other securities.
• Form 1099-C reports debts that were canceled.
• Form 1099-DIV reports dividends, qualified dividends, and capital gains distributions.
• Form 1099-G reports payments from state governments such as unemployment payments and state tax refunds.
• 1099-I reports interest earned
• Form 1099-Misc reports various types of income like payments for rent, royalties, and non-employee compensation.
• Form 1099-MSA reports distributions for a medical savings account.
• Form 1099-OID reports original issue discount income
• Form 1099-PATR reports patronage dividends paid by a cooperative.
• Form 1099-R reports distributions from a retirement plan such as a IRA, 401(k) or pension, life insurance proceeds and annuity payments.
• Form 1099-S reports proceeds from the sale of real estate.
• Form SSA-1099 reports Social Security benefits paid.
• Form RRB-1099 reports railroad retirement benefits.
For most of our clients, Form 1099-Misc, is what you’ll need to consider issuing for payments made to individuals, vendors, subcontractors, and independent contractors if you paid them $600.00 or more during the year in the following circumstances:
• cash payments to fishermen
• crop insurance proceeds
• medical and health care payments
• prizes and awards
• proceeds paid to attorneys
• services (contract labor) (including parts and materials)
• other types of payments not covered by another information reporting document
If the recipient that you’ve paid is incorporated or a LLC that has made the election to be taxed as a corporation then you do not need to issue them a 1099 but if they are an individual, partnership or LLC treated as a partnership or sole proprietorship, then you do issue one. An easy way to determine if you are required to issue a 1099 to the recipient is to require them to provide you with a form W-9. We find it helpful to require the W-9 before you pay them. One exception is for payments to attorneys. You’ll need to issue a 1099 to them even if they are incorporated. If you’re unsure if you need to issue a 1099, please contact us. You can also go to the Internal Revenue’s website at www.irs.gov/form1099misc where it gives more in-depth information on 1099-Misc.