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.
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What is the difference of Royalties and Non employee compensttion boxes?
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.
What about rent payments to a court appointed Receiver? Does the 1099 go to the Receiver or to the company that owns the building?