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General Form 1099-MISC Preparation Guidelines

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We often receive questions about preparing IRS Form 1099-MISC. The following guidelines are derived from the instructions to Form 1099-MISC, which we encourage you to review.

Form 1099-MISC is used to report certain payments to independent contractors, payments to prize or award recipients, rent paid to a landlord, and other miscellaneous payees. See “Specific Instructions” on page 1 of the instructions for more details on required recipients.

Who Should (or Should Not) Receive a Form 1099-MISC?

Non-employee compensation of $600 or more should be reported on Form 1099-MISC to:

  • Individuals.
  • Sole proprietorships.
  • Partnerships, including limited partnerships and professional partnerships.
  • Limited liability companies, so long as they are single-member disregarded entities or have elected to be taxed as a partnership.
  • Lawyers and other providers of legal services regardless of their business form, including law firms. Report attorneys’ fees of $600 or more paid in the course of your trade or business in box 7. To comply with the reporting requirements of section 6045(f), use box 14 to report any other payments of $600 or more made to an attorney in the course of your trade or business in connection with legal services, such as in a settlement agreement. See page 2 of the instructions for additional information.
  • Deceased employees. Report accrued wages, vacation pay, and other compensation paid after the year of death for any employees who died during the year. See page 3 of the instructions for details and an example.
  • Independent contractors.
  • Directors who receive directors’ fees and other remuneration, including payments made after retirement.

You do not need to send a Form 1099-MISC to:

  • A C corporation.
  • An S corporation.
  • A professional corporation (except for law firms; see above) and payments for medical or health care services (see page 6 of the instructions).
  • A limited liability company that has elected to be taxed as a C corporation.
  • A limited liability company that has elected to be taxed as an S corporation.
  • A tax-exempt organization.
  • Employees to whom you paid business travel allowances. (These may be reportable on Form W-2.)
  • Recipients of scholarships or fellowship grants that are taxable to the recipient because they are paid for research, teaching, or other services as a condition for receiving the grant. These are considered wages and are reported on Form W-2. You do not need to report other taxable scholarship or fellowship payments to the IRS.

Form 1099-MISC is prepared on a cash basis.

IRS Form W-9

Form W-9 is used to gather relevant information to aid a payor in completing Form 1099-MISC, including determining the type of entity to which it has made a payment.

You should always obtain a Form W-9 from each payee before you make a payment to the payee, because you may have a tax withholding obligation if the payee refuses to give you their taxpayer identification number. If you fail to withhold when you were required to do so, the IRS may hold you liable for the amount you should have withheld.

The information below outlines how Form W-9 should be prepared by various business entities.

Corporations

If an organization is formed as a corporation, in Form W-9 Box 3 the corporation should check either the box for a C corporation or an S corporation. (It should check S corporation only if it has filed an election to be taxed as an S corporation.)

Limited Liability Companies

If an organization is formed as a limited liability company, then it should:

  1. Check the individual/sole proprietor or single-member LLC box if it is a single-member LLC whose single member is an individual;
  2. Check the C corporation box if it is a single-member LLC whose single member is a C corporation;
  3. Check the S corporation box if it is a single-member LLC whose single member is an S corporation;
  4. Check the Partnership box if it is a single-member LLC whose single member is a partnership;
  5. Check the Trust/Estate box if it is a single-member LLC whose single member is a trust or estate; and
  6. Check the Limited Liability Company box if it is a limited liability company that has more than one member and enter the letter (C, S, or P) corresponding to its elected tax status (C corporation, S corporation, or Partnership). It would not also check the corresponding check box above.
Form 1099-MISC versus Form 1099-K

If you pay vendors using a credit card, debit card, or a third-party payment service (such as PayPal), you are not required to include those payments on Form 1099-MISC. See the section entitled “Form 1099-K” on page 2 of the instructions.

Please contact our tax team with any questions.

Ted Batson

Ted serves as partner, tax counsel, and Professional Practice Leader – Tax. As a certified public accountant and tax counsel, Ted advises exempt organizations of all sizes on a wide range of issues. This includes consulting on tax and employee benefit related matters, representation before state and federal tax authorities, and assistance with firm audit or advisory engagements to formulate advice and counsel on important operating and tax issues. Ted also leads the firm’s tax preparation practice, including IRS Forms 990 and 990-T and related state forms.

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