Form 1099 - MISC is one of the most common documents filed during tax season, and covers a range of expenses and financial transactions. More specifically, Form 1099-MISC is an information return that tells the Internal Revenue Service and other government agencies that the person named in the form has received taxable payments during the year.

Given the wide variety of expenditures to which this form relates, it can be challenging to know exactly when to file this form and when it is unnecessary. As a general rule, the IRS requires individuals to file a 1099-MISC whenever they pay an unincorporated independent contractor $600 or more in a year for work done in the course of the filer’s trade or business. For tax purposes, a trade or business is defined as an activity carried on for gain or profit. This is an important distinction, because it signifies that individuals don’t have to file a 1099-MISC for payments for non-business related services, including payments made to those who complete household services such as gardening and housekeeping.

Scenarios when a 1099-MISC is warranted

Businesses and organizations will be required to fill out a Form 1099-MISC when $600 or more is paid to persons, vendors, subcontractors, independent contractors, and others in the following circumstances:

• Cash payments to fishermen
• Crop insurance proceeds
• Medical and health care payments
• Prizes and awards
• Proceeds paid to attorneys
• Rents
• Services (including parts and materials)

Additionally, companies will be required to file Form 1099-MISC when $10 or more per year is made for broker payments in lieu of dividends or tax-exempt interest as well as royalties.

Scenarios that do not require 1099-MISC forms

There are also several business-related payments that do not have to be reported on Form 1099-MISC, including but not limited to:

• Payments to corporations
• Payments for merchandise, telephone, freight, storage, and similar items
• Payments of rent to real estate agents
• Wages paid to employees
• Military differential wage payments made to employees while they are on active duty in the Armed Forces or other uniformed services
• Business travel allowances paid to employees
• Cost of current life insurance protection
• Payments to a tax-exempt organization (including tax-exempt trusts), the United States, a state, the District of Columbia, a U.S. possession or a foreign government
• Payments made to or for homeowners from the HFA Hardest Hit Fund or the Emergency Homeowners’ Loan Program or similar state program

Businesses that find they are required to file this tax form with the IRS should ensure they abide by the tax deadlines to avoid late filing penalties. This requires that they provide the recipient with his or her copy of the Form 1099-MISC by Jan. 31 reporting income for the previous calendar year. February 28 is the deadline for mailing the form to the IRS. This deadline is extended to March 31 for those who are filing the form electronically. Failure to abide by these deadlines and submit forms will result in the following penalties:

• $30 penalty for filing a 1099 not more than 30 days late
• $60 penalty for filing a 1099 more than 30 days late and before August 1
• $100 penalty for filing a 1099 on or after August 1
• $250 penalty for intentional failure to file

For more information on filing Form 1099-MISC please contact and member of our tax services team at trustedadvisors@kahnlitwin.com or call 888-857-8557.