1099 Checklist

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The Internal Revenue Service requires businesses to submit informational returns on payments made for certain transactions. One IRS information return form, the Form 1099, has 17 different varieties from which to choose, depending on the type of payment to be reported. For example, a company might use a 1099-C to report a cancelled debt or a 1099-DIV to report dividend payments. Per the IRS, however, the most commonly used information return is the 1099-MISC. Companies may want to establish a 1099 checklist to help decide whether it is necessary to issue a 1099–MISC form at year-end.

Did You Make Payments to Independent Contractors?

Employees of a business receive a Form W-2 at year-end, not a 1099-MISC. Did you withhold income tax, Medicare and Social Security taxes from earnings? Did you pay unemployment taxes, workers compensation insurance and the employer portion of Medicare and Social Security? Did you have control over where and when the individual worked, the order and method of the work or which assistants he could hire? Did you furnish tools, supplies or equipment, or dictate where the worker must purchase such items? Did you reimburse the worker’s expenses, pay him for vacation and sick leave, pay his insurance or contribute to his pension plan? If the answer to any of these questions is “yes,” he may be an employee in the eyes of the IRS. Otherwise, if you paid at least $600 to one person, issue a 1099-MISC to him.

Did You Pay Rental Fees?

Did you pay rent of more than $600 in rent to someone other than a real estate agent? Rental payments include rent for an office, machinery and equipment and pastureland. If rental payments include non-employee compensation, such as renting a backhoe complete with operator to perform a task, prorate the amount of the machine rental and the compensation. Show the rent in Box 1 and the compensation in Box 7 on the same 1099-MISC.

Did You Make Any Royalty Payments?

You must report royalty payments of $10 or more on a Form 1099-MISC, except for surface royalties and “pay-as-cut” timber royalties, which are reported on 1099-S. Royalties include gas, oil and mineral royalties, literary royalties and payments for the use of a patent, trademark or trade name.

Did You Award Any Prizes to Non-Employees?

If you awarded any prizes with a “fair market value” of at least $600 to a non-employee, issue a 1099-MISC to the winner. For example, if your business sponsored a drawing for your customers to win a $1,000 gas card, report the prize. If, however, the winner was an employee, include the prize on his W-2.

Did You Make Payments to a Healthcare Provider?

If you paid more than $600 to a provider or supplier of medical services for business reasons, you may need to issue a 1099-MISC. Do not include payments you made to pharmacies for the purchase of prescription medications. You need not report payments you made to government-owned or tax-exempt extended care facilities or hospitals. If you made the payments to a corporation or professional corporation, issue the 1099 in the corporate name.

Did You Make Any Payments for Legal Fees?

Issue a 1099-MISC if you paid an attorney $600 or more during the year, including retainers. Do not include payments for personal legal representation. Issue the 1099 regardless of whether the legal firm is a corporation.

Did You Operate a Fishing Boat?

If crewmembers were not employees but rather contracted for a percentage of the catch, issue a 1099 to each regardless of the amount of payment. Include the amount in box 7 for any cash payments made to a crewmember for additional services, such as cooking, if such amounts were at least $100.