Who gets a 1099?

by Kelly Totten on January 4, 2010

It’s time to start preparing 2009 1099 forms. Every year the question arises: Who gets a 1099?

For the complete answer, see: http://www.irs.gov/pub/irs-pdf/i1099msc.pdf

In general, service providers you have paid $600 or more in 2009 need to be issued a 1099.  Service providers include: independent contractors, accountants, public relations firms, janitorial services, etc.  Payments to service providers are reported in box 7, non-employee compensation. Sales commissions paid to non-employees are also reported in box 7.  This does depend on the type of entity you paid:

  • Sole proprietors, partnerships, and LLC’s taxed as sole proprietors or partnerships DO get a 1099.
  • C Corporations, S Corporations, and LLC’s taxed as C or S Corporations DO NOT need to be issued a 1099.

In addition, payments for rent are issued in box 1 and follow the same corporation/non-corporation rule.   Rents paid to real estate agents do not need to be issued on a  1099.

Payments to attorneys are always issued on a 1099 (regardless of corporation/non-corporation status).  These payments will either be reported in box 7 as non-employee compensation or box 14, gross proceeds paid to an attorney.  See 1099 misc instructions for further information.

If in doubt, issue the 1099.  There is nothing wrong with issuing when you didn’t need to to, but you will face penalties if you don’t issue a 1099 when it is required.

{ 30 comments… read them below or add one }

GUY January 28, 2010 at 9:45 am

What is the difference of Royalties and Non employee compensttion boxes?

Kelly Totten January 28, 2010 at 9:58 am

Generally speaking, royalties are payments for the right to use property whereas non employee compensation is payment for services. Per the 1099 instructions:

Box 2. Royalties

Enter gross royalty payments of $10 or more before reduction for severance and other taxes that may have been withheld and paid. Use box 2 to report gross royalties (before reduction for fees, commissions, or expenses) paid by a publisher directly to an author or literary agent, unless the agent is a corporation. The literary agent (whether or not a corporation) that receives the royalty payment on behalf of the author must report the gross amount of royalty payments to the author on Form 1099-MISC whether or not the publisher reported the payment to the agent on its Form 1099-MISC. Do not include surface royalties. They should be reported in box 1. Do not report oil or gas payments for a working interest in box 2; report payments for working interests in box 7. Do not report timber royalties made under a pay-as-cut contract; report these timber royalties on Form 1099-S, Proceeds From Real Estate Transactions.

Box 7. Nonemployee Compensation

Enter nonemployee compensation of $600 or more. Include fees, commissions, prizes and awards for services performed as a nonemployee, other forms of compensation for services performed for your trade or business by an individual who is not your employee, and fish purchases for cash. Include oil and gas payments for a working interest, whether or not services are performed. Also include expenses incurred for the use of an entertainment facility that you treat as compensation to a nonemployee. Federal executive agencies that make payments to vendors for services, including payments to corporations, must report the payments in this box. See Rev. Rul. 2003-66, which is on page 1115 of Internal Revenue Bulletin 2003-26 at http://www.irs.gov/pub/irs-irbs/irb03-26.pdf.
Exceptions.
Do not report in box 7, nor elsewhere on Form 1099-MISC, the cost of current life insurance protection (report on Form W-2 or Form 1099-R); an employee’s wages, travel or auto allowance, or bonuses (report on Form W-2); or the cost of group-term life insurance paid on behalf of a former employee (report on Form W-2).

Self-employment tax. Generally, amounts reportable in box 7 are subject to self-employment tax. If payments to individuals are not subject to this tax and are not reportable elsewhere on Form 1099-MISC, report the payments in box 3. However, report section 530 (of the Revenue Act of 1978) worker payments in box 7.

Nonqualified deferred compensation (Section 409A) income. Include in box 7 the amount of all deferrals (plus earnings) reported in box 15b that are includible in gross income because the nonqualified deferred compensation (NQDC) plan fails to satisfy the requirements of section 409A. These amounts generally are subject to self-employment tax and are also subject to a substantial additional tax under section 409A that is reported on the nonemployee’s Form 1040. See Regulations sections 1.409A-1 through 1.409A-6.

What is nonemployee compensation? If the following four conditions are met, you must generally report a payment as nonemployee compensation.

You made the payment to someone who is not your employee;
You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations);
You made the payment to an individual, partnership, estate, or, in some cases, a corporation; and
You made payments to the payee of at least $600 during the year.

Max August 5, 2010 at 1:43 pm

What about rent payments to a court appointed Receiver? Does the 1099 go to the Receiver or to the company that owns the building?

GUY January 25, 2011 at 9:00 am

How do i determine if a LLC company is taxed as an S corp, or C corp and thus does not need a 1099?

Kelly Totten January 25, 2011 at 9:29 am

Guy, Request a W9 from them. There is a line specific to LLCs and how they are taxed: http://www.irs.gov/pub/irs-pdf/fw9.pdf

When in doubt, just send the 1099.

Joe June 1, 2011 at 6:53 am

Does anyone have a definitive link defining what is included in rent in box 1? For example, if I have to pay taxes, insurance and utilities to the landlord, do I include all payments I make to my landlord as rent?

Thanks!
Joe

Kelly Totten June 1, 2011 at 7:40 am

It depends on your specific situation. My understanding is reimbursable expenses (you pay them for actual utilities, etc) do not need to be included on the 1099. However if it’s just in your lease agreement that your rent includes $50 towards utilities, etc, then you would need to include it.

I have not found a definitive link addressing this specific issue.

**Disclaimer: This answer is opinion based on general experience. A tax professional can provide advice for your specific situation.

Vern January 28, 2012 at 3:02 pm

I am a restaurant owner new to filing 1099. We have so many different people in and out doing work and providing products that are not technically employees, I am so confused what applies and what does not. I understand the whole has to be $600.00 thing. Do I need to file 1099 to our food, beverage, and linen vendors? Insurance, cable, phone, internet, security cameras, water softner service, alarm service, advertisers? My list can go on and on. Please help. Thanks!

Kelly Totten January 28, 2012 at 4:42 pm

1099, box 7 is for nonemployee compensation…i.e. independent contractors. It is not for the purchase of merchandise, telephone or similar. You would not send to the vendors you mentioned. Types of contractors typically receiving a 1099 are: professional service providers like bookkeepers, attorneys, accountants, and business consultants. Also cleaning services, people who perform maintenance services, moving services, etc.

**Disclaimer: This answer is opinion based on general experience. A tax professional can provide advice for your specific situation.

Rose January 31, 2012 at 8:28 am

Regarding Vern’s question – if those merchandisors or cable providers or alarm servic providors were LLC’s taxed as partnerships would he then have to issue a 1099?

Kelly Totten January 31, 2012 at 10:51 am

I view cable and alarm service providers as similar to telephone which is explicitly not issued a 1099 per the instructions. Additionally, 1099s are meant to report compensation to individuals to ensure they include income on their returns. They are also reviewed in employment audits to ensure that you didn’t treat someone as a contractor who was really an employee (to get out of employment taxes). A simple rule of thumb..if you could hire the services to be performed by an employee (or multiple employees), then you need to issue a 1099 to non-corporations. If you can’t, it’s probably not a box 7, non-employee compensation service. i.e. You couldn’t hire employees to provide cable service, so that’s not a 1099,non-employee compensation event. You could hire someone on your payroll to clean your office, so that is a 1099 event. Make sense?

**Disclaimer: This answer is opinion based on general experience. A tax professional can provide advice for your specific situation.

Amy February 7, 2012 at 8:35 am

If I 1099 a corporation and they send it back saying that they do not get a 1099, what happens? They tell me to void the 1099 but how does this hurt the corporation if I 1099 them? Why do corporations get away with not being 1099?

Eric Seaman February 9, 2012 at 9:46 am

Above it says LLC’s taxed as C or S Corporations DO NOT need to be issued a 1099. Where is this covered in the IRS publications? I’ve looked but can’t find it

Kelly Totten February 9, 2012 at 9:57 am

A LLC is a legal entity. 1099s are based on the taxable entity, so if it’s taxed as a C or S, it doesn’t HAVE to be issued a 1099. You can always choose to issue it anyway.

**Disclaimer: This answer is opinion based on general experience. A tax professional can provide advice for your specific situation.

Kelly Totten February 9, 2012 at 10:00 am

It doesn’t hurt them and you don’t have to void it. You can send a 1099 to them if you choose, it’s just not required. The 1099 is just information reporting. It’s primarily meant for independent contractors to ensure all income is reported.

Candis Grayson October 18, 2012 at 9:33 am

If a company is an LLC, but Classed as a D-Disregarded Entity – do I need to send them a 1099?

Kelly Totten October 18, 2012 at 10:14 am

Yes. A “Disregarded Entity” means they are operating as a sole proprietor and you have to send a 1099.

debra Phillips January 22, 2014 at 12:52 pm

Thank you…. I have been struggling with this for 2 years now.
You answered my question is about 3 lines, and I have read volumes on this 1099 question and LLC’s.

Jen Woodward January 24, 2014 at 1:42 pm

A homeowner had some new windows put in their house! They want to send us a 1099 for $1,000 some odd dollars. Can you 1099 someone when they did a job on your home. If that is the case every homeowner we deal with would be sending us one. We are already paying taxes on that money as it was job income! I’m confused.

Angla Gordon January 28, 2014 at 10:02 am

If I have a company that is LLC, but they check P-Partnership I do need to send a 1099 correct?

Sara January 28, 2014 at 8:08 pm

I have a bookkeeping and tax services business. I always worked as sole proprietor (with a dba). Late 2013 I incorporated my business.
Can my clients issue the 1099-misc forms for the new corporation or to my name? for all 2013 payments?

Kelly Totten January 28, 2014 at 8:24 pm

Sara – Your sole proprietorship has a different tax id and is a different entity. They will need to issue a 1099 for payments that were made to you as a sole proprietor. They can exclude any payments to the corporation.

Kelly Totten January 28, 2014 at 8:25 pm

Angela – That is correct.

Kelly Totten January 28, 2014 at 8:27 pm

Jen – The 1099 is just a way of making sure that you are reporting income. You don’t pay tax twice…you’ll still report your income the same way. My guess is the homeowner has it as a rental property and they should send 1099s to contractors.

Sara January 28, 2014 at 9:08 pm

Thanks a lot for answering my question

Lois January 29, 2014 at 5:39 pm

Question. I do 1099′s for a man who owns several companies. He pays his 1099 recipients out of whichever bank account/company has enough money in it, so I am constantly making journal entries to get the expenses recorded into the correct entity. My question is this: Should the 1099 come from the company that actually PAID for the services, or the company which records the expenses on their books?

Kelly Totten January 29, 2014 at 5:46 pm

Yikes, what a pain! I would generate the 1099 from the company that is taking the expense. That is the company that will be audited for that 1099.

Sara January 30, 2014 at 12:24 pm

Hello again,I prepared and mailed this morning the 1099-misc forms to one of my client’s contractors,now when I got to the office the client e mailed me that they found out an additional amounts were paid to some of the contractors, which mean the ones I just mailed needs to be corrected.Please advise of best course of action,should I mail them additional 1099-misc forms with the additional amounts(so a contractor will have 2 forms),or prepare new Forms with correct amount(total)and mark it corrected. Nothing has been reported to IRS yet. Thank you

Kelly Totten January 30, 2014 at 12:37 pm

Sara – I would let the contractor know that an incorrect 1099 is in the mail along with the inaccurate amount. Ask them to shred it. Then issue a new one in the right amount and send it to them. Since it hasn’t gone to the IRS, you have time to fix the mistake without filing a corrected form or raising a red flag. It really is a good idea to have everything reconciled before issuing 1099s to avoid cumbersome fixes.

Sara February 5, 2014 at 2:38 pm

can I ask a question that is not related to 1099 forms, but rather concerning personal taxes, filing status and claiming a dependent…. ?

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