Instructions for Form 1099-MISC |
2006 Tax Year |
Instructions for Form 1099-MISC - Main Contents
This is archived information that pertains only to the 2006 Tax Year. If you are looking for information for the current tax year, go to the Tax Prep Help Area.
Specific Instructions for Form 1099-MISC
File Form 1099-MISC, Miscellaneous Income, for each person to whom you have paid during the year:
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At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest (see Box 8 on page MISC-6);
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At least $600 in rents, services (including parts and materials), prizes and awards, other income payments, medical and health
care
payments, crop insurance proceeds, cash payments for fish (or other aquatic life) 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;
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Any fishing boat proceeds; or
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Gross proceeds to an attorney. See Payments to attorneys on page MISC-2.
Form 1099-M.I.S.C. Miscellaneous Income 2003. Summary: This is an example of Form 1099-M.I.S.C. (2003) as pertains to the text. The completed line items are:
“Payer's name, street address, city, state, ZIP code, and telephone number” field contains
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X.Y.Z. Builders
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123 Maple Avenue
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Oaktown, Virginia 22000
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703-123-4567
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“Payer's federal identification number” field contains 10-9999999
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“Recipient's identification number” field contains 123-00-6789
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“Recipient's name” field contains
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Zachary Austin
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d.b.a./Rock Hill Drywall
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“Street Address (including apartment number)” field contains 456 Flower Lane
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“City, state, and ZIP code” field contains Oaktown, Virginia 22000
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“7. Nonemployee compensation” field contains $5500.00
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In addition, use Form 1099-MISC to report that you made direct sales of at least $5,000 of consumer products to a buyer for
resale anywhere other
than a permanent retail establishment. You must also file 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.
Be sure to report each payment in the proper box because the IRS uses this information to determine whether the recipient
has properly reported the
payment.
Trade or business reporting only.
Report on Form 1099-MISC only when payments are made in the course of your trade or business. Personal payments are
not reportable. You are engaged
in a trade or business if you operate for gain or profit. However, nonprofit organizations are considered to be engaged in
a trade or business and are
subject to these reporting requirements. Nonprofit organizations subject to these reporting requirements include trusts of
qualified pension or
profit-sharing plans of employers, certain organizations exempt from tax under section 501(c) or (d), and farmers' cooperatives
that are exempt from
tax under section 521. Payments by federal, state, or local government agencies are also reportable.
Exceptions.
Some payments are not required to be reported on Form 1099-MISC, although they may be taxable to the recipient. Payments
for which a Form 1099-MISC
is not required include:
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Generally, payments to a corporation; but see Reportable payments to corporations on page MISC-2;
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Payments for merchandise, telegrams, telephone, freight, storage, and similar items;
-
Payments of rent to real estate agents, but see Regulations section 1.6041-1(e)(5), Example 5;
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Wages paid to employees (report on Form W-2, Wage and Tax Statement);
-
Business travel allowances paid to employees (may be reportable on Form W-2);
-
Cost of current life insurance protection (report on Form W-2 or Form 1099-R, Distributions From Pensions, Annuities, Retirement
or
Profit-Sharing Plans, IRAs, Insurance Contracts, etc.);
-
Payments to a tax-exempt organization, the United States, a state, the District of Columbia, a U.S. possession, or a foreign
government;
and
-
Certain payment card transactions if a payment card organization has assigned a merchant/payee a Merchant Category Code (MCC)
indicating
that reporting is not required. A cardholder/payor may rely on the MCC that the payment card organization assigned to a merchant/payee
to determine if
a payment card transaction with that merchant/payee is subject to reporting under section 6041 or section 6041A. For more
information and a list of
merchant types with corresponding MCCs, see Revenue Procedure 2004-43 which is on page 124 of Internal Revenue Bulletin 2004-31
at
www.irs.gov/pub/irs-irbs/irb04-31.pdf.
Fees paid to informers.
A payment to an informer as an award, fee, or reward for information about criminal activity is not required to be
reported if the payment is made
by a federal, state, or local government agency, or by a nonprofit organization exempt from tax under section 501(c)(3) that
makes the payment to
further the charitable purpose of lessening the burdens of government. For more information, see Regulations section 1.6041-3(l).
Scholarships.
Do not use Form 1099-MISC to report scholarship or fellowship grants. Scholarship or fellowship grants that are taxable
to the recipient because
they are paid for teaching, research, or other services as a condition for receiving the grant are considered wages and must
be reported on Form W-2.
Other taxable scholarship or fellowship payments (to a degree or nondegree candidate) are not required to be reported by you
to the IRS on any form.
See Notice 87-31, 1987-1 C.B. 475 and Regulations section 1.6041-3(n) for more information.
Difficulty-of-care payments.
Difficulty-of-care payments that are excludable from the recipient's gross income are not required to be reported.
Difficulty-of-care payments to
foster care providers are not reportable if paid for not more than 10 children under age 19 and not more than 5 individuals
age 19 or older. Amounts
paid for more than 10 children or more than 5 individuals are reportable on Form 1099-MISC.
Canceled debt.
A canceled debt is not reportable on Form 1099-MISC. Canceled debts are required to be reported on Form 1099-C, Cancellation
of Debt, by financial
institutions, credit unions, federal government agencies, certain agencies connected with the Federal Government, and an organization
where the
lending of money (such as finance and credit card companies) is a significant trade or business. See the Instructions for
Forms 1099-A and 1099-C.
Reportable payments to corporations.
The following payments made to corporations generally must be reported on Form 1099-MISC.
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Medical and health care payments reported in box 6.
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Fish purchases for cash reported in box 7.
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Attorneys' fees reported in box 7.
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Gross proceeds paid to an attorney reported in box 14.
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Substitute payments in lieu of dividends or tax-exempt interest reported in box 8.
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Payments by a federal executive agency for services (vendors) reported in box 7.
Federal executive agencies may also have to file Form 8596, Information Return for Federal Contracts, and Form 8596-A, Quarterly
Transmittal of
Information Returns for Federal Contracts, if a contracted amount for personal services is more than $25,000. See Rev. Rul.
2003-66, which is on page
1115 of Internal Revenue Bulletin 2003-26 at
www.irs.gov/pub/irs-irbs/irb03-26.pdf for details.
Payments to attorneys.
The term attorney includes a law firm or other provider of legal services. Attorneys' fees of $600 or more paid in
the course of your trade or
business are reportable in box 7 of Form 1099-MISC.
Gross proceeds paid to attorneys.
Under section 6045(f), report in box 14 payments to an attorney made in the course of your trade or business in connection
with legal services, for
example, as in a settlement agreement, unless the attorney's fees are reportable by you in box 7. Generally, you are not required
to report the
claimant's attorney's fees. For example, an insurance company pays a claimant's attorney $100,000 to settle a claim. The insurance
company reports the
payment as gross proceeds of $100,000 in box 14. The insurance company does not have a reporting requirement for the claimant's
attorney's fees
subsequently paid from these funds.
These rules apply whether or not the legal services are provided to the payer and whether or not the attorney is exclusive
payee (for example, the
attorney's and claimant's names are on one check) or other information returns are required for some or all of a payment under
section 6041(a)(1). For
example, a person who, in the course of a trade or business, pays $600 of taxable damages to a claimant by paying that amount
to a claimant's attorney
is required to furnish Form 1099-MISC to the claimant under section 6041 and furnish Form 1099-MISC to the claimant's attorney
under section 6045(f).
For more examples and exceptions relating to payments to attorneys, see Regulations section 1.6045-5.
However, these rules do not apply to wages paid to attorneys that are reportable on Form W-2 or to profits distributed
by a partnership to its
partners that are reportable on:
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Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc., or
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Schedule K-1 (Form 1065-B), Partner's Share of Income (Loss) From an Electing Large Partnership.
Payments to corporations for legal services.
The exemption from reporting payments made to corporations does not apply to payments for legal services. Therefore,
you must report attorneys'
fees (in box 7) or gross proceeds (in box 14) as described above to corporations that provide legal services.
Taxpayer identification numbers (TINs).
To report payments to an attorney on Form 1099-MISC, you must obtain the attorney's TIN. You may use Form W-9, Request
for Taxpayer Identification
Number and Certification, to obtain the attorney's TIN. An attorney is required to promptly supply its TIN whether it is a
corporation or other
entity, but the attorney is not required to certify its TIN. If the attorney fails to provide its TIN, the attorney may be
subject to a penalty under
section 6723 and its regulations, and you must backup withhold on the reportable payments.
Fish purchases.
If you are in the trade or business of purchasing fish for resale, you must report total cash payments of $600 or
more paid during the year to any
person who is engaged in the trade or business of catching fish. Report these payments in box 7. You are required to keep
records showing the date and
amount of each cash payment made during the year, but you must report only the total amount paid for the year on Form 1099-MISC.
“ Fish” means all fish and other forms of aquatic life. “ Cash” means U.S. and foreign coin and currency and a cashier's check, bank draft,
traveler's check, or money order. Cash does not include a check drawn on your personal or business account.
Deceased employee's wages.
If an employee dies during the year, you must report the accrued wages, vacation pay, and other compensation paid
after the date of death. If you
made the payment in the same year the employee died, you must withhold social security and Medicare taxes on the payment and
report them only as
social security and Medicare wages on the employee's Form W-2 to ensure that proper social security and Medicare credit is
received. On the Form W-2,
show the payment as social security wages (box 3) and Medicare wages and tips (box 5) and the social security and Medicare
taxes withheld in boxes 4
and 6; do not show the payment in box 1 of Form W-2.
If you made the payment after the year of death, do not report it on Form W-2, and do not withhold social security
and Medicare taxes.
Whether the payment is made in the year of death or after the year of death, you also must report the payment to the
estate or beneficiary on Form
1099-MISC. Report the payment in box 3 (rather than in box 7 as specified in Rev. Rul. 86-109, 1986-2 C.B. 196). See the Example below.
Enter the name and TIN of the payment recipient on Form 1099-MISC. For example, if the recipient is an individual beneficiary,
enter the name and
social security number of the individual; if the recipient is the estate, enter the name and employer identification number
of the estate. The general
backup withholding rules apply to this payment.
However, death benefits from qualified and nonqualified deferred compensation plans paid to the estate or beneficiary
of a deceased employee are
not reportable on Form 1099-MISC but are reportable on Form 1099-R. See the Instructions for Forms 1099-R and 5498.
Example.
Before Employee A's death on June 15, 2007, A was employed by Employer X and received $10,000 in wages on which federal income
tax of $1,500 was
withheld. When A died, X owed A $2,000 in wages and $1,000 in accrued vacation pay. The total of $3,000 (less the social security
and Medicare taxes
withheld) was paid to A's estate on July 20, 2007. Because X made the payment during the year of death, X must withhold social
security and Medicare
taxes on the $3,000 payment and must complete Form W-2 as follows:
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Box 1—10000.00 (does not include the $3,000 accrued wages and vacation pay)
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Box 2—1500.00
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Box 3—13000.00 (includes the $3,000 accrued wages and vacation pay)
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Box 4—806.00 (6.2% of the amount in box 3)
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Box 5—13000.00 (includes the $3,000 accrued wages and vacation pay)
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Box 6—188.50 (1.45% of the amount in box 5)
Employer X also must complete Form 1099-MISC as follows:
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Boxes for recipient's name, address, and TIN—the estate's name, address, and TIN.
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Box 3—3000.00 (Even though amounts were withheld for social security and Medicare taxes, the gross amount is reported
here.)
If Employer X made the payment after the year of death, the $3,000 would not be subject to social security and Medicare taxes
and would not be
shown on Form W-2. However, the employer would still file Form 1099-MISC.
Employee business expense reimbursements.
Do not use Form 1099-MISC to report employee business expense reimbursements. Report payments made to employees under
a nonaccountable plan as
wages on Form W-2. Generally, payments made to employees under an accountable plan are not reportable on Form W-2, except
in certain cases when you
pay per diem or mileage allowance. For more information, see the Instructions for Forms W-2 and W-3, Pub. 463, Travel, Entertainment,
Gift, and Car
Expenses, and Pub. 1542, Per Diem Rates. For information on reporting employee moving expense reimbursements on Form W-2,
see the Instructions for
Forms W-2 and W-3.
Independent contractor or employee.
Generally, you must report payments to independent contractors on Form 1099-MISC in box 7. See the instructions for
box 7 on page MISC-5.
Section 530 of the Revenue Act of 1978 as extended by section 269(c) of P.L. 97-248, deals with the employment
tax status of independent contractors and employees. To qualify for relief under section 530, employers must file Form 1099-MISC.
Additional
requirements for relief are discussed in Rev. Proc. 85-18, 1985-1 C.B. 518. Also see Pub. 15-A, Employer's Supplemental Tax
Guide, for special rules
that may apply to technical service specialists and test proctors and room supervisors.
Transit passes and parking for independent contractors.
Although you cannot provide qualified transportation fringes to independent contractors, the working condition and
de minimus fringe rules for
transit passes and parking apply to independent contractors. Tokens or farecards that enable an independent contractor to
commute on a public transit
system (not including privately operated van pools) are excludable from the independent contractor's gross income and are
not reportable on Form
1099-MISC if their value in any month is $21 or less. However, if the value of a pass provided in a month is greater than
$21, the full value is
includible in gross income and is reportable on Form 1099-MISC. The value of parking may be excludable from an independent
contractor's gross income,
and, therefore, not reportable on Form 1099-MISC if certain requirements are met. See Regulations section 1.132-9,
Q/A 24.
Directors' fees.
You must report directors' fees and other remuneration, including payments made after retirement, on Form 1099-MISC
in the year paid. Report them
in box 7.
Commissions paid to lottery ticket sales agents.
A state that has control over and responsibility for online and instant lottery games must file Form 1099-MISC to
report commissions paid, whether
directly or indirectly, to licensed sales agents. For example, State X retains control over and liability for online and instant
lottery games. For
online ticket sales, State X pays commissions by allowing an agent to retain 5% of the ticket proceeds the agent remits to
State X. For instant ticket
sales, State X pays commissions by providing tickets to the agent for 5% less than the proceeds to be obtained by the agent
from the sale of those
tickets. If the commissions for the year total $600 or more, they must be reported in box 7 on Form 1099-MISC. See Rev. Rul.
92-96, 1992-2 C.B. 281.
Escrow agent; construction project.
When an escrow agent maintains owner-provided funds in an escrow account for a construction project, performs management
and oversight functions
relating to the construction project, and makes payments for the owner and the general contractor, the escrow agent must file
Form 1099-MISC for
reportable payments of $600 or more. This requirement applies whether or not the escrow agent is a bank. If the contractor
is the borrower of the
funds, do not report on Form 1099-MISC any loan payments made to the contractor/borrower.
Indian gaming profits, payments to tribal members.
If you make payments to members of Indian tribes from the net revenues of class II or class III gaming activities
conducted or licensed by the
tribes, you must withhold federal income tax on such payments and file Form 1099-MISC.
File Form 1099-MISC to report the distributions to tribal members. Report the payments in box 3 and the federal income
tax withheld in box 4. Pub.
15-A contains the necessary “ Tables for Withholding on Distributions of Indian Gaming Profits to Tribal Members.”
State or local sales taxes.
If state or local sales taxes are imposed on the service provider and you (as the buyer) pay them to the service provider,
report them on Form
1099-MISC as part of the reportable payment. However, if sales taxes are imposed on you (as the buyer) and collected from
you by the service provider,
do not report the sales taxes on Form 1099-MISC.
Statements to recipients.
If you are required to file Form 1099-MISC, you must provide a statement to the recipient. For more information about
the requirement to furnish a
statement to each recipient, see part M in the 2007 General Instructions for Forms 1099, 1098, 5498, and W-2G.
2nd TIN not.
You may enter an “ X” in this box if you were notified by the IRS twice within 3 calendar years that the payee provided an incorrect TIN. If
you mark this box, the IRS will not send you any further notices about this account. However, if you received both IRS notices
in the same year, or if
you received them in different years but they both related to information returns filed for the same year, do not check the
box at this time. For
purposes of the two notices in 3-year rule, you are considered to have received one notice. You are not required to send a
second “ B” notice upon
receipt of the second notice. See part N in the 2007 General Instructions for Forms 1099, 1098, 5498, and W-2G for more information.
For information on the TIN Matching System offered by the IRS, see the 2007 General Instructions for Forms 1099, 1098, 5498,
and W-2G.
The account number is required if you have multiple accounts for a recipient for whom you are filing more than one Form 1099-MISC.
Additionally,
the IRS encourages you to designate an account number for all Forms 1099-MISC that you file. See part L in the 2007 General
Instructions for Forms
1099, 1098, 5498, and W-2G.
Enter amounts of $600 or more for all types of rents, such as real estate rentals paid for office space (unless paid to a
real estate agent),
machine rentals (for example, renting a bulldozer to level your parking lot), and pasture rentals (for example, farmers paying
for the use of grazing
land). If the machine rental is part of a contract that includes both the use of the machine and the operator, the rental
should be prorated between
the rent of the machine (reported in box 1) and the operator's charge (reported as nonemployee compensation in box 7).
Public housing agencies must report in box 1 rental assistance payments made to owners of housing projects. See Rev. Rul.
88-53, 1988-1 C.B. 384.
Coin-operated amusements.
If an arrangement between an owner of coin-operated amusements and an owner of a business establishment where the
amusements are placed is a lease
of the amusements or the amusement space, the owner of the amusements or the owner of the space, whoever makes the payments,
must report the lease
payments in box 1 of Form 1099-MISC if the payments total at least $600. However, if the arrangement is a joint venture, the
joint venture must file a
Form 1065, U.S. Return of Partnership Income, and provide each partner with the information necessary to report the partner's
share of the taxable
income. Coin-operated amusements include video games, pinball machines, jukeboxes, pool tables, slot machines, and other machines
and gaming devices
operated by coins or tokens inserted into the machines by individual users. For more information, see Rev. Rul. 92-49, 1992-1
C.B. 433.
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.
Enter other income of $600 or more required to be reported on Form 1099-MISC that is not reportable in one of the other boxes
on the form.
Also enter in box 3 prizes and awards that are not for services performed. Include the fair market value (FMV)
of merchandise won on game shows. Also include amounts paid to a winner of a sweepstakes not involving a wager. If a wager
is made, report the
winnings on Form W-2G, Certain Gambling Winnings.
If, not later than 60 days after the winner becomes entitled to the prize, the winner can choose the option of a lump sum
or an annuity payable
over at least 10 years, the payment of winnings is considered made when actually paid. If the winner chooses an annuity, file
Form 1099-MISC each year
to report the annuity paid during that year.
Do not include prizes and awards paid to your employees. Report these on Form W-2. Do not include in box 3 prizes and awards
for services performed
by nonemployees, such as an award for the top commission salesperson. Report them in
box 7.
Prizes and awards received in recognition of past accomplishments in religious, charitable, scientific, artistic, educational,
literary, or civic
fields are not reportable if:
-
The winners are chosen without action on their part,
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The winners are not expected to perform future services, and
-
The payer transfers the prize or award to a charitable organization or governmental unit under a designation made by the recipient.
See Rev.
Proc. 87-54, 1987-2 C.B. 669.
Other items required to be reported in box 3 include the following:
-
Generally, all punitive damages, any damages for nonphysical injuries or sickness, and any other taxable damages. Report punitive
damages
even if they relate to physical injury or physical sickness. Generally, report all compensatory damages for nonphysical injuries
or sickness, such as
employment discrimination or defamation. However, do not report damages (other than punitive damages):
-
Received on account of personal physical injuries or physical sickness;
-
That do not exceed the amount paid for medical care for emotional distress; or
-
Received on account of nonphysical injuries (for example, emotional distress) under a written binding agreement, court decree,
or mediation
award in effect on or issued by September 13, 1995.
Damages received on account of emotional distress, including physical symptoms such as insomnia, headaches, and stomach disorders,
are not
considered received for a physical injury or physical sickness and are reportable unless described in b or c above. However,
damages received on
account of emotional distress due to physical injuries or physical sickness are not reportable.
Also report liquidated damages received under the Age Discrimination in Employment Act of 1967.
Taxable back pay damages may be wages and reportable on Form W-2. See Pub. 957, Reporting Back Pay and Special Wage Payments
to the Social Security
Administration.
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Payments of $600 or more to any one patient or member in a Department of Veterans Affairs (VA) hospital or domiciliary under
the VA's
therapeutic or rehabilitative programs. See Rev. Rul. 65-18, 1965-1 C.B. 32.
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Payments as explained on page MISC-2 under Deceased employee's wages.
-
Payments as explained on page MISC-3 under Indian gaming profits, payments to tribal members.
-
Payments made by a company to their former employees while they are in the military service with the United States Government
or active
service with the State National Guard. See Rev. Rul. 69-136, 1969-1 C.B. 252.
-
Termination payments to former self-employed insurance salespeople. These payments are not subject to self-employment tax
and are reportable
in box 3 (rather than box 7) if all the following apply:
-
The payments are received from an insurance company because of services performed as an insurance salesperson for the company.
-
The payments are received after termination of the salesperson's agreement to perform services for the company.
-
The salesperson did not perform any services for the company after termination and before the end of the year.
-
The salesperson enters into a covenant not to compete against the company for at least 1 year after the date of termination.
-
The amount of the payments depends primarily on policies sold by the salesperson or credited to the salesperson's account
during the last
year of the service agreement or to the extent those policies remain in force for some period after termination, or both.
-
The amount of the payments does not depend at all on length of service or overall earnings from the company (regardless of
whether
eligibility for payment depends on length of service).
If the termination payments do not meet all these requirements, report them in box 7.
Box 4. Federal Income Tax Withheld
Enter backup withholding. For example, persons who have not furnished their TIN to you are subject to withholding at a 28%
rate on payments
required to be reported in boxes 1, 2 (net of severance taxes), 3, 5 (to the extent paid in cash), 6, 7 (except fish purchases
for cash), 8, 10, and
14. For more information on backup withholding, see the 2007 General Instructions for Forms 1099, 1098, 5498, and W-2G.
Also enter any income tax withheld from payments to members of Indian tribes from the net revenues of class II or class III
gaming activities
conducted or licensed by the tribes.
Regulations section 31.3406(g)-1(f) provides that backup withholding is not required for certain payment card transactions
if:
-
The payment is made through a payment card organization that is a Qualified Payment Card Agent as described in Rev. Proc.
2004-42, which is
on page 121 of Internal Revenue Bulletin 2004-31 at
www.irs.gov/pub/irs-irbs/irb04-31.pdf,
-
The payment is made on or after January 1, 2005, and
-
The requirements of Regulations section 31.3406-1(g) are met.
Box 5. Fishing Boat Proceeds
Enter the share of all proceeds from the sale of a catch or the FMV of a distribution in kind to each crew member of fishing
boats with normally
fewer than 10 crew members. A fishing boat has normally fewer than 10 crew members if the average size of the operating crew
was fewer than 10 on
trips during the preceding 4 calendar quarters.
In addition, report cash payments of up to $100 per trip that are contingent on a minimum catch and are paid solely for additional
duties (such as
mate, engineer, or cook) for which additional cash payments are traditional in the industry. However, do not report on Form
1099-MISC any wages
reportable on Form W-2.
Box 6. Medical and Health Care Payments
Enter payments of $600 or more made in the course of your trade or business to each physician or other supplier or provider
of medical or health
care services. Include payments made by medical and health care insurers under health, accident, and sickness insurance programs.
If payment is made
to a corporation, list the corporation as the recipient rather than the individual providing the services. Payments to persons
providing health care
services often include charges for injections, drugs, dentures, and similar items. In these cases the entire payment is subject
to information
reporting. You are not required to report payments to pharmacies for prescription drugs.
The exemption from issuing Form 1099-MISC to a corporation does not apply to payments for medical or health care services
provided by corporations,
including professional corporations. However, you are not required to report payments made to a tax-exempt hospital or extended
care facility or to a
hospital or extended care facility owned and operated by the United States (or its possessions), a state, the District of
Columbia, or any of their
political subdivisions, agencies, or instrumentalities.
Generally, payments made under a flexible spending arrangement (as defined in section 106(c)(2)) or a health reimbursement
arrangement which is
treated as employer-provided coverage under an accident or health plan for purposes of section 106 are exempt from the reporting
requirements of
section 6041.
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
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 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.
When to report.
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.
Examples.
The following are some examples of payments to be reported in box 7.
-
Professional service fees, such as fees to attorneys (including corporations), accountants, architects, contractors, engineers,
etc.
-
Fees paid by one professional to another, such as fee-splitting or referral fees.
-
Payments by attorneys to witnesses or experts in legal adjudication.
-
Payment for services, including payment for parts or materials used to perform the services if supplying the parts or materials
was
incidental to providing the service. For example, report the total insurance company payments to an auto repair shop under
a repair contract showing
an amount for labor and another amount for parts, if furnishing parts was incidental to repairing the auto.
-
Commissions paid to nonemployee salespersons that are subject to repayment but not repaid during the calendar year.
-
A fee paid to a nonemployee, including an independent contractor, or travel reimbursement for which the nonemployee did not
account to the
payer, if the fee and reimbursement total at least $600. To help you determine whether someone is an independent contractor
or an employee, see Pub.
15-A.
-
Payments to nonemployee entertainers for services. Use Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding,
for payments
to nonresident aliens.
-
Exchanges of services between individuals in the course of their trades or businesses. For example, an attorney represents
a painter for
nonpayment of business debts in exchange for the painting of the attorney's law offices. The amount reportable by each on
Form 1099-MISC is the FMV of
his or her own services performed. However, if the attorney represents the painter in a divorce proceeding, this is an activity
that is unrelated to
the painter's trade or business. The attorney must report on Form 1099-MISC the value of his or her services. But the painter
need not report on Form
1099-MISC the value of painting the law offices because the work is in exchange for legal services that are separate from
the painter's
business.
-
Taxable fringe benefits for nonemployees. For information on the valuation of fringe benefits, see Pub. 15-B, Employer's Tax
Guide to Fringe
Benefits.
-
Gross oil and gas payments for a working interest.
-
Payments to an insurance salesperson who is not your common law or statutory employee. See Pub. 15-A for the definition of
employee.
However, for termination payments to former insurance salespeople, see 6. Termination payments to former self-employed insurance
salespeople on page MISC-4.
-
Directors' fees as explained under Directors' fees on page MISC-3.
-
Commissions paid to licensed lottery ticket sales agents as explained under Commissions paid to lottery ticket sales agents on
page MISC-3.
-
Payments to section 530 (of the Revenue Act of 1978) workers. See the TIP on page MISC-3.
-
Fish purchases for cash. See Fish purchases on page MISC-2.
Golden parachute payments.
A parachute payment is any payment that meets all of the following conditions.
-
The payment is in the nature of compensation.
-
The payment is to, or for the benefit of, a disqualified individual.
-
The payment is contingent on a change in the ownership of a corporation, the effective control of a corporation, or the ownership
of a
substantial portion of the assets of a corporation (a change in ownership or control).
-
The payment has (together with other payments described in 1, 2, and 3 above made to the same individual) an aggregate present
value of at
least 3 times the individual's base amount.
A disqualified individual is one who at any time during the 12-month period prior to and ending on the date of the
change in ownership or control
of the corporation (the disqualified individual determination period) was an employee or independent contractor and was in
regard to that corporation,
a shareholder, an officer, or a highly compensated individual.
For more details, see Regulations section 1.280G-1. Also, see Rev. Proc. 2003-68, which is on page 398 of Internal
Revenue Bulletin 2003-34 at
www.irs.gov/pub/irs-irbs/irb03-34.pdf, concerning the valuation of stock options for
purposes of golden parachute payment rules. For the treatment of unvested shares of restricted stock, see Rev. Rul. 2005-39,
which is on page 1 of
Internal Revenue Bulletin 2005-27 at
www.irs.gov/pub/irs-irbs/irb05-27.pdf
Independent contractor.
Enter in box 7 the total compensation, including any golden parachute payment. For excess golden parachute payments,
see box 13 reporting
instructions.
For employee reporting of these payments, see Pub. 15-A.
Box 8. Substitute Payments in Lieu of Dividends or Interest
Enter aggregate payments of at least $10 received by a broker for a customer in lieu of dividends or tax-exempt interest as
a result of a loan of a
customer's securities. For this purpose, a customer includes an individual, trust, estate, partnership, association, company,
or corporation. See
Notice 2003-67, which is on page 752 of Internal Revenue Bulletin 2003-40 at
www.irs.gov/pub/irs-irbs/irb03-40.pdf. It does not include a tax-exempt organization, the
United States, any state, the District of Columbia, a U.S. possession, or a foreign government. File Form 1099-MISC with the
IRS and furnish a copy to
the customer for whom you received the payment. Also, file Form 1099-MISC for and furnish a copy to an individual for whom
you received a payment in
lieu of tax-exempt interest.
Substitute payment means a payment in lieu of (a) a dividend or (b) tax-exempt interest to the extent that interest (including
OID) has accrued
while the securities were on loan.
Box 9. Payer Made Direct Sales of $5,000 or More
Enter an “X” in the checkbox for sales by you of $5,000 or more of consumer products to a person on a buy-sell, deposit-commission, or
other
commission basis for resale (by the buyer or any other person) anywhere other than in a permanent retail establishment. Do
not enter a dollar amount
in this box.
If you are reporting an amount in box 7, you may also check box 9 on the same Form 1099-MISC.
The report you must give to the recipient for these direct sales need not be made on the official form. It may be in the form
of a letter showing
this information along with commissions, prizes, awards, etc.
Box 10. Crop Insurance Proceeds
Enter crop insurance proceeds of $600 or more paid to farmers by insurance companies unless the farmer has informed the insurance
company that
expenses have been capitalized under section 278, 263A, or 447.
Boxes 11 and 12. Reserved
Make no entries in these boxes.
Box 13. Excess Golden Parachute Payments
Enter any excess golden parachute payments. An excess parachute payment is the amount of the excess of any parachute payment
over the base amount
(the average annual compensation for services includible in the individual's gross income over the most recent 5 taxable years).
See Q/A-38 through
Q/A-44 of Regulations section 1.280G-1 for how to compute the excess amount.
See Golden parachute payments on page MISC-6 for more information.
Box 14. Gross Proceeds Paid to an Attorney
Enter gross proceeds paid to an attorney in connection with legal services (regardless of whether the services are performed
for the payer). See
Payments to attorneys on page MISC-2.
Box 15a. Section 409A Deferrals
Enter the total amount deferred during the year of at least $600 for the nonemployee under all nonqualified plans. The deferrals
during the year
include earnings on the current year and prior year deferrals. For additional information, see Regulations sections 1.409A-1
through 1.409A-6.
For deferrals and earnings under NQDC plans for employees, see the Instructions for Forms W-2 and W-3.
Box 15b. Section 409A Income
Enter all amounts deferred (including earnings on amounts deferred ) that are includible in income under section 409 because
the NQDC plan fails to
satisfy the requirements of section 409A. Do not include amounts previously included in income. Also, do not include amounts
that are considered to be
subject to a substantial risk of forfeiture for purposes of section 409A. For additional information, see Regulations sections
1.409A-1 through
1.409A-6.
The amount included in box 15b is also includible in box 7 and generally is subject to self-employment tax.
Boxes 16-18. State Information
These boxes, and Copies 1 and 2, are provided for your convenience only and need not be completed for the IRS. Use the state
information boxes to
report payments for up to two states. Keep the information for each state separated by the dash line. If you withheld state
income tax on this
payment, you may enter it in box 16. In box 17, enter the abbreviated name of the state and the payer's state identification
number. The state number
is the payer's identification number assigned by the individual state. In box 18, you may enter the amount of the state payment.
Use Copy 1 to provide
information to the state tax department. Give Copy 2 to the recipient for use in filing the recipient's state income tax return.
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