Filing Form 1099 – Who is required to file?

Should you be filing Form 1099? Many people are familiar with 1099s when they are on the receiving end. You may receive a 1099 from a company that has paid you to do work, and you know that you need to file it as income similar to a W-2. But what if you are issuing a 1099? We find the best tips for employers are on the Internal Revenue Service website. Here are some highlights:

Q: Who is required to file a Form 1099?

A: If you made or received a payment during the calendar year as a small business or self-employed individual, you are most likely required to file Form 1099.

Made a Payment

If, as part of your trade or business, you made any of the following types of payments in the amount of $600 or more, you are required to file an information return.  The most common information is Form 1099-MISC.

Form 1099-MISC

  • Services performed by independent contractors or other non-employees of your business
  • Prizes, awards, and certain other income (see instructions for Form 1099-MISC, Box 3)
  • Rent
  • Royalties
  • Backup withholding or federal income tax withheld
  • Crewmembers of your fishing boat
  • To physicians, physicians’ corporation or other supplier of health and medical services
  • For a purchase of fish from anyone engaged in the trade or business of catching fish
  • Substitute dividends or tax exempt interest payments and you are a broker
  • Crop insurance proceeds
  • Gross proceeds of $600 or more paid to an attorney

There are other types of information returns you may be required to file:

  • Interest on a business debt to someone (excluding interest on an obligation issued by an individual (1099-INT)
  • Dividends or other distributions to a company shareholder (1099-DIV)
  • Distribution from a retirement or profit plan or from an IRA or insurance contract (1099-R)
  • Payments to merchant or other entities in settlement of reportable payment transaction, that is, any payment card or third party network transaction (1099-K)

Received a Payment

If, as part of your trade or business, you made any of the following types of payments in the amount of $600 or more, these are the most common information returns you are required to file.

  • Payment of mortgage interest (including points) or reimbursements of overpaid interest from individuals (1098)
  • Sale or exchange of real estate (1099-S)
  • You are a broker and you sold a covered security belonging to your customer (1099-B)
  • You are an issuer of a security taking a specified corporate action that affects the cost basis of the securities help by others (Form 8937)
  • You released someone from paying a debt secured by property or someone abandoned property that was subject to the debt (1099-A) or otherwise forgave their debt to you (1099-C)
  • You made direct sales of at least $5,000 of consumer products to a  buyer for resale anywhere other than a permanent retail establishment (1099-MISC)

Not Required to File Information Returns

You are not required to file information return(s) if any of the following situations apply:

  • You are not engaged in a trade or business
  • You are engaged in a trade or business and
    • the payments was made to another business that is incorporated, or
    • the sum of all payments made to the person or unincorporated business is less than $600 in one tax year (unless the recipient is an attorney or law firm, see 1099 MISC Instructions, Box 7)

Q: If the person I am paying reports their income on a 1099, why must I also report it?

A: You may think, as the payer, that you are doing double duty by filing a 1099 for payments you have made, however if you do not file the payment that you made on your own Form 1099, the IRS may not recognize the payment as an expense, and you may have to pay income tax on that amount!  Check out our next blog on Penalties of late or not filing your 1099s!