How to Know When to Issue a 1099-MISC
The IRS defines the rules for issuing 1099 forms to people your small business pays for services, work or royalties. These rules only apply to businesses, not individuals. The IRS requires that different 1099s be used in specific situations. For example, the 1099-R refers to income paid by retirement programs, while the 1099-MISC covers a variety of miscellaneous payments you have made to anyone at dollar limits established by the IRS in a calendar year.
Before you can send out IRS Form 1099-MISC, you must have the Social Security number or the Tax Identification Number and the address of the person to whom you plan to make payments during a calendar year. From the IRS website, download the latest W-9 form, Request for Taxpayer Identification Number, and mail or give it to the supplier, vendor, attorney or freelancer to whom you plan to pay during the calendar year. They must fill it out and return it to you so that you have the correct information to correctly fill out the 1099-MISC forms.
For people who are not employees, but who have completed work for you or to whom you have paid money, the IRS 1099 miscellaneous form provides them and the IRS information on the total paid during the calendar year. You must send these information forms to those you have paid by January 31 of each year, and file copies with the government by specific dates in March, which can change each year, based on whether you file electronically or mail in paper forms. You must use 1099 forms designated and approved by the IRS available from stationery or office supplies stores, or follow its procedures for filing electronically. The IRS can penalize your business for failing to file 1099-MISC forms.
The IRS requires that you send 1099-MISC forms to each person to whom you made broker payments in lieu of dividends, tax-exempt interest payments or royalties in a calendar year of $10 or more. Any gross proceeds to an attorney of $600 or more require a 1099-MISC be sent to the attorney and filed with the IRS. And you must send a 1099-MISC to anyone whom you have paid $600 or more during a calendar year for freelance, contractual work or services -- including supplies, materials and parts -- prizes, awards and other income payments and file it with the IRS by the deadlines.
The IRS also requires you to fill out and mail 1099-MISC forms to anyone to whom you make medical and health care payments of $600 or more during the calendar year, crop insurance proceeds or cash paid from a "notional principal contract" to an estate, partnership or individual. This also includes payments of $600 or more for fish and other water life to those engaged in catching fish as a business or a trade and proceeds from fishing boat activities. Also use the 1099-MISC form for reporting at least $5,000 in direct sales to an independent buyer or wholesaler who doesn't have a permanent retail store for consumer products he sells. The 1099 must also include any federal income tax amounts withheld under the backup withholding rules.
When you run a business, it may seem confusing to whom you must send these 1099-MISC forms, but they double as backup for your business expenses. Basically any contractor you have paid, wholesalers, consultants, mentors and inspectors, bookkeepers, accountants and attorneys should all receive a 1099-MISC form from your business. This also includes property managers, landlords from whom you rent business space, assistants, web developers or graphic artists. You do not have to send these forms to state-licensed S- or C-corporations, but you must send them to attorneys for fees or proceeds, medical and health care facilities, as for drug screenings or employment exams and limited liability companies, partnerships or people who "do business as" business registrations.