Confused About Form 1099

tax papers
One of the most important tax and payroll issues a company has to address is who is an actual employee and who is an independent contractor. But once you have that worked out, your next step is making sure each category of workers gets the right forms. Generally, employees get each year, and independent contractors get Form 1099-MISC. This form can be used for a variety of payments, and one of the most common and significant uses is for independent contractors.

Generally, Form 1099-MISC must be issued to all nonemployees (including sole proprietors, limited liability companies and partnerships) that are paid in excess of $600 during the year for services provided, and this is requirement applies to all trades and businesses. For the purpose of this form, even a nonprofit entity is considered a trade or business. Federal, state and local governments are also required to issue these forms.

Corporate Payments Exceptions

Form 1099-MISC is also required in a variety of payments to corporations:

  • Medical and health care payments.
  • Attorneys’ fees.
  • Substitute payments in lieu of dividends or tax-exempt interest.
  • Payments by a federal executive agency to vendors for services.

However, Form 1099-MISC is not typically used for corporate payments. In fact, there are many payments for which Form 1099-MISC is not appropriate, such as:

  • Payments for merchandise, telegrams, telephone, freight, storage and similar expenses.
  • Payments of rent to real estate agents.
  • Military differential wage payments made to employees while they are on active duty in the armed forces or other uniformed services (report on Form W-2).
  • Business travel allowances paid to employees (may be reportable on Form W-2).

If you’re not sure which form to use, and when, give us a call. We’ll be happy to help you sort out the details.