Tax Form 1099-MISC Instructions

Elizabeth Rosen
by Elizabeth Rosen, Contributor

Tax Form 1099-MISC is commonly used among self-employed professionals to report profits from services performed for other organizations. If you are a sole-proprietor and were paid more than $600 for services during a given tax year, the business you worked for is required to send Tax Form 1099-MISC.

There are many details of Tax Form 1099-MISC that you need to be aware of. Upon receiving this tax form, you should immediately review the box for “non-employment compensation.” This is the actual amount of money that you earned by working for the company. It is your responsibility to report this income on your tax return. The IRS receives the same form, so they will know if you failed to report this income.

Generally speaking, Tax Form 1099-MISC is very similar to Tax Form W-2. The only difference is that a 1099-MISC is for sole-proprietors while a W-2 is for employees.

Who Must File Form 1099-MISC?

You must file Form 1099-MISC for each person to whom you have paid during the year:

  • At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest
  • At least $600 in rents, services, prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payment for fish you purchase from anyone engaged in the trade or business of catching fish, or, generally, the cash paid from a notional principal contract to an individual, partnership, or estate;
  • Any fishing boat proceeds; or
  • Gross proceeds of $600 or more paid to an attorney

You must also file a 1099-MISC Form to report any direct sales that you made of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.

Additionally, you must file a Form 1099-MISC for each person from whom you have withheld any federal income tax under the backup withholding rules regardless of the amount of the payment.

IRS Tax Form 1099-MISC (Miscellaneous Income)

The 1099-MISC Form has five copies:

  • Copy A ― For Internal Revenue Service Center
  • Copy 1 ― For State Tax Department
  • Copy B ― For Recipient
  • Copy 2 ― To be filed with recipient’s state income tax return, when required
  • Copy C ― For Payer

You must provide the PAYER’S name and address, as well as the PAYER’S Federal Identification Number.

Then provide the RECIPIENT’S Identification Number, and the RECIPIENT’S name and address.

An Account Number is required if you have multiple accounts for a recipient for whom you are filing more than one Form 1099-MISC.

Form 1099-MISC has eighteen boxes:

  1. Rents
  2. Royalties
  3. Other Income
  4. Federal income tax withheld
  5. Fishing boat proceeds
  6. Medical and health care payments
  7. Nonemployee compensation
  8. Substitute payments in lieu of dividends or interest
  9. Payer made direct sales of $5,000 or more of consumer products to a buyer (recipient) for resale
  10. Crop insurance proceeds
  11. Reserved (make no entry)
  12. Reserved (make no entry)
  13. Excess golden parachute payments
  14. Gross proceeds paid to an attorney
  15. Section 409A deferrals
  16. Section 409A income
  17. State tax withheld
  18. State/Payer’s state no.
  19. State income

Withholding tax (also known as “payroll withholding”) is essentially income tax that is withheld from your wages and sent directly to the IRS by your employer. In other words, it’s like a credit against the income taxes that you must pay for the year. In general, the more money that is withheld from your wages throughout the year, the greater your tax refund may be because you’ve essentially overpaid the IRS. While everyone likes to get a tax refund, you should keep in mind that you’re only getting back the money you earned that year. A tax refund is basically an interest-free loan that you gave to the IRS!

The purpose of Tax Form W-4 is simple ― it is used by your employer to withhold the proper amount of federal income tax from your paycheck. The IRS recommends that employees submit a new W-4 tax form each year, or any time their personal or financial situation changes. Of course, this is required upon beginning any new job.