A box-wise explanation to help you understand and interpret Form 1099-MISC for the tax year 2020-2021.
Businesses are preparing to wind up a pretty harsh 2020 and step into the New Year 2021. If you plan on having a less-challenging start in New Year and beyond, then we recommend fully understanding each box of Form 1099-MISC.
Starting with the New Year in 2021, businesses have to include a new, additional form to their form family when reporting to the IRS.
1099-MISC for Tax Year 2020-2021 Has a Major Update
Box 7 of 1099-MISC has been done away with for good.
That’s right. The IRS has released a new form called Form 1099-NEC to replace Box 7 of Form 1099-MISC.
With an aim to restrain businesses from misclassifying their employees as independent contractors, the IRS re-introduced Form 1099-NEC, which dates back to 1979.
How to Read Form 1099-MISC: For Businesses
If you’re a business owner/payer you should know how to read and understand Form 1099-MISC boxes.
Box 1: Rent
If your business has paid rent amounting to $600 or more, then such an amount is supposed to be specified here.
Box 2: Royalties
If you have paid any royalties amounting to at least $10, then such an amount must be specified here. Surface royalties don’t need to be specified here but must be specified in Box 1.
You have to keep in mind to report royalties from oil, gas, or other mineral properties before reduction for severance and other taxes that you may have withheld or paid.
Box 3: Other Income
Any prize or awards amounting to more than $600 are to be reported in this box. Please note that incomes such as wages will not be considered as ‘other incomes’ and must not be entered here.
Box 4: Federal Income Tax Withheld
If you have withheld any payments from contractors for federal taxes, then such an amount is supposed to be entered here.
Box 5: Fishing Boat Proceeds
If you are the owner of a fishing boat, then you have to enter the amount paid to a contracted member of your crew here. If you do not own a fishing boat, then you can leave this box blank.
Box 6: Medical and Health Care Payments
If you have made any payments to a medical or health care professional, then such amount must be specified here. Please note that you can leave this box blank if the total amount paid is less than $600.
Box 7: Direct Sales Greater than $5000
Please note that you do not have to enter any amount here. All you need to do is check the box if you have made direct sales amounting to $5000 or more by selling consumer products to a payee/recipient for resale.
Box 8: Substitute Payments (In lieu of dividends or interest)
Any substitute payments made to a broker in lieu of dividends or interest must be entered here. Learn more about substitute payments directly from the IRS here.
Box 9: Crop Insurance Proceeds
If you are an insurance company and paid crop proceeds to farmers amounting to more than $600, then such amount must be entered here. Please note that you can leave this box blank if this does not apply to your business.
Box 10: Payments to Attorneys
If your business hired an attorney to utilize their legal services and made a payment of $600 or more, then such an amount must be entered in this box.
Box 11: Fish Purchased for Resale
If you own a fish trading business, and you have made payments to purchase fish for resale purposes, then the amount paid for the purchase must be entered here. If you do not own a fish trading business, you can leave this box blank.
Box 12: Section 409A Deferrals
This box is reserved and does not need you to enter anything. Learn why here.
Box 13: Excess Golden Parachute Payments
If you have made any golden parachute payments, then that amount must be specified here. Please note that the amount is subject to a 20% excise tax.
Box 14: Non-Qualified Deferred Compensation
Any non-qualified deferred compensations made in course of your business must be entered here. You also have to include any incomes earned through deferred amounts, which qualify as income (such as wages, pay, etc). Learn more about them here.
Box 15: State Tax Withheld
Enter any state tax that you may have withheld. Please note that you only have to enter the amount in this box if you think it is necessary. You may leave this box blank.
Box 16: State/Payer’s State Number
Enter your (the payer) state number here. Or leave this box blank.
Box 17: State Income
Reserved, leave it blank.
Bonus Note on Boxes 15-17
Boxes15-17 may be used by the participants of the CF/SF (Combined Federal/State Filing) Program. Payers who are required to file a paper copy of this tax form with the state tax department are also required to fill this box. Learn more about it here.
Due Date to Submit Form 1099-MISC
Form 1099-MISC, as the name suggests, is used by businesses to report miscellaneous income. As a business owner, it is your responsibility to report and submit this form (postmarked) to the IRS on or by the 1st of February 2021.
How to e-File Form 1099-MISC in 2020-2021 with Tax1099
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