IRS 1099-MISC Form: Filing Instructions, Usage, & Online Submission

Let’s say, however, that your business hires a drone photographer to take some photos, and in addition to their freelancer fee of $1,000, they charge you a $500 equipment rental fee to use the drone.

Because they’re not on your payroll, you would need to use Form 1099-NEC to report the $1,000 photographer fee. Because drone rental is a miscellaneous expense and not compensation, you would also have to use Form 1099-MISC to report the drone rental fee. 

MISC and NEC: what’s the difference?

The main differences between 1099 MISC & 1099 NEC are:

1099-NEC is used to report nonemployee compensation, while 1099-MISC is used to report other, miscellaneous payments you make to nonemployees.

For example, if your business hires a graphic designer to make you a logo and they charge you $600 for it, you’ll use 1099-NEC to report what you pay them. 

On the other hand, if you hold a graphic design contest to redesign your company’s logo and award a $600 cash prize to the winner, you’ll have to use 1099-MISC to report that payment.

I’m confused. I thought 1099-MISC was used to report both?

It used to be. Until 2020, the IRS used 1099-MISC to report both nonemployee compensation and miscellaneous payments.

Then in 2015, the PATH Act changed the rules around when you were supposed to file 1099-MISC, creating two different deadlines depending on whether you filled box 7. 

In 2020, the IRS brought back an old form called 1099-NEC to get rid of the confusion. Two separate forms, two separate deadlines.

What’s the reporting threshold for Form 1099-MISC?

You have to file Form 1099-MISC to report total payments equal to or greater than $600 to a nonemployee in miscellaneous income. If they don’t meet the $600 threshold, you don’t have to file.

Also remember that if the payee is a registered C or S corporation, you don’t have to file a Form 1099 for them.

How to file IRS Form 1099-MISC

Step 1: Gather information for all of your payees

Before you start, get together the following information for each payee you plan on filing a 1099-MISC for:

• Receipts, invoices and any other payment information
• Their full legal name and address
• Their taxpayer identification number (TIN)

Get your payee to fill out Form W-9 to get their TIN, which is usually their social security number. You should keep a W-9 on file for each payee.

Step 2: Fill out Form 1099-MISC

Form 1099-MISC, which you can find on the IRS website, comes in two parts: Copy A and Copy B. They are identical, the only difference is that you have to send Copy A to the IRS and Copy B to the payee for their records.

Form 1099-MISC contains many different boxes that capture all of the different kinds of miscellaneous payments. Many of these are specific to certain industries and won’t apply to your business. Here’s what each of the sections means:

1. Rents

If you pay property managers or owners for use of a retail or office space, a contractor for the use of their equipment, or make any other kind of rental payment to a nonemployee, use Box 1 to record that amount.

2. Royalties

If you use someone’s property in the course of your business and they charge you for it–say their intellectual property, like a trademark or a patent–that’s called a royalty payment. Record any royalties you paid in Box 2.

3. Other Payments

This is one of the broadest categories on 1009-MISC–use it to record things like contest prizes, payments related to a notional principal contract, compensation paid to H-2A workers, and any other payments that don’t fit neatly into any of the other boxes on 1099-MISC.

4. Federal Income Tax Withheld

This box is used to record something called “backup withholding,” which are taxes you’re obligated to withhold from a nonemployee’s compensation if the IRS tells you to.

5. Fishing Boat Proceeds 

Use this box if you operate a fishing boat and pay your crew based on the proceeds of your catch.

6. Medical and Health Care Payments

Use this box if a health care provider bills you for something like injections, drugs, or any other physical or mental health care service.

7. Direct Sales

If you made more than $5,000 in sales to someone on a commission basis for resale and you did it outside of a permanent retail establishment, enter an “x” in the checkbox.

8. Broker Payments

If you paid a broker at least $10 in lieu of a dividend or tax-exempt interest income on the loan of a security, enter that amount in Box 8.

9. Crop Insurance Proceeds

Use this box if you’re an insurance company and you paid $600 or more in crop insurance proceeds to a farmer.

10. Gross Proceeds Paid to an Attorney

If you pay for legal services but the payment isn’t direct compensation for attorney services–for example, if it’s a payment connected to a settlement agreement instead–use box 10 to record it.

11. Cash Payments for Fish Purchased for Resale

If you’re in the fish resale business, use this box to record any cash paid to people who are in the business of catching fish. ("Fish" here means all forms of aquatic life, the IRS is careful to point out.)

14. Excess Golden Parachute Payments

If a business closes or changes hands, high-paid individuals will sometimes receive what’s called a “golden parachute” payment. Any golden parachute payments in “excess” of the base amount should be recorded in Box 14.

16-18. State Taxes

If you're filing under the combined federal/state program, or your state requires you to file a copy of this form with your state, use these boxes to record any state payments and state tax withheld.

Step 3: Send Copy A to the IRS

Send 1099-MISC Copy A to the IRS by mail or digitally. It’s due on February 28 if you’re filing on paper and March 31 if you’re filing electronically.

To use the IRS’s Filing a Return Electronically (FIRE) system, you’ll need a Transmitter Control Code (TCC), which you can request by completing an IR Application for TCC (formerly Form 4419). Remember that you need to request a TCC at least 30 days before the filing deadline for Form 1099-MISC.

Step 4: Mail or email Copy B to the payee

Mail or email Copy B to your payee for their records. They’ll report their income separately on their own taxes, but they’ll need Copy B to verify the total amount they were paid for the year. If you do decide to email them Copy B, remember that you’ll have to obtain consent before you do so.

Step 5: If you’re filing by mail, file Form 1096

Form 1096 is used by the IRS to track all of the different Form 1099s you send them. If you file a physical Copy A with them, you’ll need to complete Form 1096 as well.