Who Needs a 1099-MISC?

With the end of January approaching, we’re busy preparing forms 1099 for our clients.  One of the questions we get most often is: “Who needs a 1099, and why?”

Form 1099-MISC is used to report a number of different payments, but for this posting, we’ll discuss the most common one, nonemployee compensation.

Nonemployee compensation is a technical term for payments to subcontractors.  If you pay $600 or more to a subcontractor for services to your business in a year, you may be required to issue them a Form 1099-MISC.  Only subcontractors that are incorporated are exempt from the reporting rules.  This means they need to be a legal corporation – an LLC is still required to receive a 1099.  Family members who provide $600 or more in services are also required to get a Form 1099.

Remember, these are for services provided to your business – you don’t need to worry about issuing a 1099 to people like your personal cleaning lady or your occasional babysitter, nor do you need to issue a 1099 for payments for products like office supplies or computer purchases.

You should always make sure you have a completed Form W9, Request for Taxpayer Identification Number and Certification, from your subcontractors before you make the first payment to them.  This form will give you all the information you need to determine if you are required to issue them a Form 1099, and the name, address, and tax ID number to use when doing so.

The forms are due in the mail by January 31st of each year.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.