Friday, December 19, 2014

The Mysterious Form 1099-MISC- Unveiled!


My first interesting encounter with the Form 1099-MISC was many, many years ago when I worked with a big box tax prep company. A guy walked in with literally a shoe-box full of these forms all made out to him under his Social Security Number. We spent quite a huge chunk of time getting through those but boy did I learn fast on the ins & outs of this mysterious form! 

What is Form 1099-MISC?: 

Form 1099-MISC, Miscellaneous Income, is issued to a person if any of the following situations occur, when a trade or business or some other qualified organization pays:

  • If at least $10 in royalties or broker payments are paid to a person 
  • At least $600 in: rents; services performed by someone who is not your employee; prizes and awards; other income payments; medical and health care payments; crop insurance proceeds; cash paid from a notional principal contract to an individual, partnership, or estate; payments to an attorney among others, are paid to a person.
  • To report that direct sales of at least $5,000 of consumer products were made to a buyer for resale anywhere other than a permanent retail establishment. 


What Would You Do If You Received A Form 1099-Misc?:

If any of the above circumstances applied to you, and you happened to receive a Form 1099-MISC, you would first look at what box of the form, the amount is reported in. For example, items in, boxes 1 & 2 would most of the times go on the Schedule E; box 3 on line 21; box 7 on a Schedule C; and so on. Instructions in greater detail are here




Items in Box 7, Non-Employee Compensation: 

Usually, you would be issued a Form 1099-MISC with amounts in Box 7 if you were an independent contractor and were not on an organization's payroll. These numbers would usually go on a Schedule C, you would be able to deduct costs related to obtaining this income. The expenses to be deducted need to be backed up by receipts and please note that this is a highly audited area by the Internal Revenue Service, hence due diligence has to be maintained at all times with record-keeping. 

If you need to know if you were an independent contractor versus an employee, please do read my blog-post here

Change in Tax Liability Due to Form 1099-MISC: 

Most times, if you know that you will receive a Form 1099-MISC from someone, and/ or it is the first time you have ever received such a form, be prepared that your taxes for the year may be higher than usual. You will have to consult with a tax professional to estimate what your tax liability might be. 





FATCA Filing Requirements of Certain Foreign Financial Institutions (FFIs): 

Beginning in 2014, an FFI with a Chapter 4 requirement to report a U.S. account maintained by them, and held by a specified U.S. person may satisfy this requirement by reporting on Form 1099-MISC. 

Also, a U.S. payor may satisfy its Chapter 4 requirement to report such a U.S. account by reporting on Form 1099-MISC. 

A new check box was added to Form 1099-MISC to identify an FFI filing this form. So, if you receive a Form 1099-MISC with a check in the box "FATCA Filing Requirement", examine your filing thresholds for FinCEN Form 114 and/ or Form 8938. More about these thresholds in my blog posts here, here and here.  

Please consult a qualified tax professional if any of the above apply to you. A tax professional has the tools at their disposal to give you the best advice there is and guide you with your future in mind. 




Bibliography: Form 1099-MISC; FinCEN Form 114; Form 8938;  Regulations section 1.1471-4(d)(5)(i)(A). 


----
As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. More of my contact information is on my website, www.mntaxsolutionsllc.com










5 comments:

  1. The receipt of a certain volume of Forms 1099-MISC can also be a great opportunity for tax planning, such as from consideration of the effects of receipt of income by a business entity.

    ReplyDelete
  2. Thanks James, you are absolutely right!

    ReplyDelete
  3. One 1099-MISC problem not discussed is the requirement to report medical and health care payments to corporations and other non-individuals. The IRS requires 1099s to these entities unless the payee is a nonprofit or governmental institution. Unfortunately, the IRS only provides an e-service that identifies tax-exempt hospital entities (often only a hospital's separate tax exempt foundation and not the nonprofit hospital itself), but does not cover the majority of other nonprofit hospitals.

    A small number of states publish lists of some hospitals within their borders, including tax identification numbers, but there does not seem to be an easily accessible national resource. Do you or anyone reading this thread know of a comprehensive nationwide list of nonprofit hospitals that includes tax identification numbers?

    ReplyDelete
    Replies
    1. Hi Sean, Good point! I was trying to keep the blog succinct & talk about the more commonly received payments on Form 1099-MISC. I do not know if such a list, as you describe exists for every state. Maybe guidestar.org is a good resource (type hospitals in their search box), however this list from Guidestar would be limited to the hospitals registered with them I guess.

      Delete
  4. Another thing - for those doing farm and ranch returns - payments to veterinarians are considered medical payments. Once you hit the $600 limit you must 1099 them, even if they are a corporation. Oh what fun.

    ReplyDelete