When a business pays you money, other than for employment wages, it may report the annual total to you, and the Internal Revenue Service, on a Form 1099-MISC. The businesses that make the payments to you are solely responsible for determining whether you'll need a 1099-MISC or not. But because mistakes do happen, knowing when you should request a 1099-MISC that never arrived in the mail can help ensure your tax return declares all income that should be declared.
Freelance and Contract Work
The most common reason for needing a 1099-MISC is when you provide services to a business as an independent contractor. Each business that pays you $600 or more during the year is required to send you a 1099-MISC. Bear in mind, however, that you still have to report the money you earn even if the amount you're paid is less than $600 and doesn't require a 1099-MISC. When you receive 1099-MISC forms for the contract work you do, the total payments are reported as nonemployee compensation in box 7 of the form.
Collecting Legal-Related Fees
If you're an attorney and don't work for a law firm or other employer, you may receive 1099-MISC forms from businesses that you perform legal services for and collect $600 or more in fees from during the year. You may also receive 1099s if a business settles a legal dispute with one of your clients, and the monetary settlement is sent to you rather than directly to the plaintiff.
Other 1099-MISC Reporting
Form 1099-MISC is used to report a wide range of other transactions. If you own real estate or other property, such as machinery and equipment, that's leased to a business – the company will have to report annual lease payments of $600 or more on the 1099-MISC. And if you're ever paid royalties of $10 or more, such as for licensing the rights to your intellectual property, those payments are also reportable on the 1099-MISC form. Winning a prize or award of at least $600 that didn't require you to place a wager is another situation when you'll need a 1099-MISC from the business that pays the prize to you. Although there's a number of other transactions that may be reported on Form 1099-MISC, it's worth noting that if you're a physician or supplier that provides medical services or goods, and you don't operate through a corporate business entity, some of your business clients may have to report their payments to you on a 1099-MISC.
When Back-Up Withholding Required
Sometimes it's not the type of transaction or the amount you're paid, but the fact that you're subject to backup tax withholding that results in you needing a 1099-MISC. For example, when a business hires you on a contract basis, it's likely they'll ask you to fill out Form W-9 with your full name, Social Security number and other identifying information. If you fail to enter your SSN or report one that's incorrect, the IRS may require the business to back-up withhold 28 percent of your payments for income taxes. In this case, you'll need a 1099-MISC even if your payments total less than $600.
Michael Marz has worked in the financial sector since 2002, specializing in wealth and estate planning. After spending six years working for a large investment bank and an accounting firm, Marz is now self-employed as a consultant, focusing on complex estate and gift tax compliance and planning.