Demystifying Form 1099-MISC

Miscellaneous can mean pretty much anything, right? Well you don’t use Form 1099-MISC for reporting any and every income necessarily. So it creates confusion for taxpayers. Read below to gain some clarity on the form, and how to use it come tax season.

Overview of Form 1099-MISC

Most commonly, Form 1099-MISC will be sent to freelancers and independent contractors to report earnings, amounts earned as ‘non-employee’ income. Occasionally, taxpayers need this form to report rent, royalties, prizes, and awards. Each type of payment falls into its own box on the form. You may receive multiple forms, one for each company you received $600 or more from over the year. The caveat: if you earn less than $600 from any one company, they will not send you a form. But you are still required to report this income.

How to use Form 1099-MISC, box by box:

Box 7 – Non-employee Income

The most common box. If your contract work doesn’t count as your main source of income, you will simply report the amount in Box 7 in ‘other income’ on your tax return. If you work as a freelancer or contractor for a substantial amount of your income, the IRS considers you self-employed, and you will report the amount earned on a Schedule C attachment of your tax return.

Box 6 – Medical and Healthcare Payments

Here, report payments to physicians or other providers of medical services of $600 or more made in the course of trade or business. Also include payments made by healthcare insurers under accident and sickness insurance programs.

Box 3 – Other Income

The misc of all misc boxes. Here, include prize and award money, damages and juror’s compensation, etc.; anything that doesn’t fall under the other boxes. Generally, you need to report any income in this box as regular income on your 1040.

Box 2 – Royalties

Taxable royalties are payments made to you for the use/exploitation of owned property; this is similar to rent and taxed very similarly, reported on Schedule E, and some situations, Schedule C. These royalty payments also include intangible property such as copyrights and patents.

Box 1 – Rents

If you own property rented to a business, you will receive 1099-MISC with the amount reported by the business in Box 1, and to be reported on Schedule E as passive activity income. Sometimes, it is reported on Schedule C and reported as self-employment income. If you own a residential property, you will not receive 1090-MISC.

The advantages of Form 1099-MISC

As a contractor or freelancer, you have more freedom to claim deductions. For example, if you use a computer, software, etc. to complete your freelance work, your deduction is less restrictive than if you were a full-time employee. Further, you can likely claim the home office deduction. As far as paying taxes go, since you are required to pay throughout the year, you have the advantage of calculating exactly how much you owe using widely-available worksheets; you won’t have to worry about over or underpaying the IRS.

MISC-1099, demystified. You must reclaim all (we mean all) income by the IRS’s standards. And MISC-1099 helps simplify the process when the time comes to file.


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