Small business owners issue 2 different tax forms to individuals—Form W-2 for an employee or a 1099 for an independent contractor. Most 1099 boxes are self explanatory. However, some mention confusing things like fishing boat proceeds and golden parachute payments. If you’ve never issued a 1099, our handy how-to guide breaks down a 1099 box by box.
Box 1—Rents: The total amount of rent you paid for your business space to an individual goes here. You can also enter amounts for other things (like equipment rentals) as long as they’re paid to an individual.
Box 2—Royalties: The total amount you paid someone for property rights goes here. This could include physical (mining, oil, or gas) or intellectual (patent or copyright) property rights.
Box 3—Other income: If you provided a $600 or higher taxable payment to someone and it doesn’t fit in any of the other boxes, it goes here. Need more details? Publication 525 gets right into the nitty gritty of what qualifies as other income.
Box 4—Federal Income Tax withheld: Any taxes that you withheld from the amount entered in Box 3 goes here.
Box 5—Fishing boat proceeds: This field likely doesn’t apply to you. But on the off chance that you’re the owner of a fishing boat and you’re issuing this 1099 to a member of your crew, you’re in the right place! Enter the amount paid here.
Box 6—Medical and healthcare payments: Did your business make a payment of $600 or more to an individual who provided medical or healthcare services this year? Report that amount here.
Box 7—Nonemployee compensation: Report any payments made to an independent contractor or other non-employee here. Not sure if a payment qualifies? The IRS provides these 4 guidelines for determining if Box 7 is the right place to enter it:
- You made the payment to someone who is not your employee
- You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations)
- You made the payment to an individual, partnership, estate, or a corporation
- You made payments of at least $600 to the payee during the year
Box 8—Substitute payments in lieu of dividends or interest: Most small business owners won’t use this one, but if you paid someone a sum of at least $10 instead of dividends, or if you’re paying someone tax-exempt interest as a result of borrowing their securities, that amount goes here.
Box 9—Payer made direct sales of $5,000 or more of consumer products to a buyer (recipient) for resale: This field is fairly self-explanatory. Check this box if you sold products directly to someone so they could sell them to other people.
Box 10—Crop insurance proceeds: Are you an insurance company issuing this 1099 to a farmer due to crop insurance payments? We didn’t think so. Most of us never have a reason to fill in Box 10.
Box 7—Nonemployee compensation: Report any payments made to an independent contractor or other non-employee here. Not sure if a payment qualifies? The IRS provides these 4 guidelines for determining if Box 7 is the right place to enter it:
Box 11 & 12: Fun tax fact! Years ago, the IRS used these boxes to record any foreign taxes paid. Today this information is reported on a separate form. They couldn’t delete these 2 boxes without renumbering boxes 13-18, so they just left them blank. You should, too.
Box 13—Excess golden parachute payments: You can probably skip this one, too. You only enter an amount in Box 13 if you paid a disqualified person like a shareholder or highly paid person at least 3 times their typical amount. Box 14—Gross proceeds paid to an attorney: If you’re issuing a 1099 to an attorney for legal services in an amount greater than $600, enter that amount here.
Box 15a—Section 409A deferrals: Don’t worry about entering anything in this box. If you’re a tax nerd, or you’re just curious, read Internal Revenue Bulletin 2008-52.
Box 15b—Section 409A income: Did you defer a payment that would have been categorized as section 409A income because a nonqualified deferred compensation plan didn’t meet the requirements for section 409A? Enter that amount here. If you have no idea what we just said, don’t worry. Box 15b most likely doesn’t apply to you.
Box 16, Box 17, and Box 18: If your state participates in the Combined Federal/State Filing Program you’ll need to complete these boxes. Each field is divided in 2 in case you need to report in 2 states.
Box 16—State tax withheld: Record any state tax you withheld from your payment to this contractor.
Box 17—State/Payer’s state no: Enter the state’s abbreviated name and your state identification number.
Box 18—State income: Enter the amount of the state payment.
There are several different kinds of 1099s that you might receive as an individual and several others that you may issue as a small business owner. Here’s a quick rundown of the most common types of 1099s you’ll encounter, and when they’re used:
1099-MISC: Your small business will usually use this form. It’s issued to your contractors or other non-employees.
1099-DIV: If you own stock and you receive over $10 in payments, you’ll need to file a 1099-DIV.
1099-INT: You’ll receive this if a financial institution has paid you more than $10 in interest in a calendar year.
1099-C: If you forgive a debt of over $600 you’re required to file a 1099-C. Likewise, if you have a debt of over $600 forgiven by someone else, you are required to include it on your tax return as income and pay taxes on it.
1099-G: You will receive a 1099-G if you receive payments from the government such as unemployment insurance, tax refunds, or grants.
1099-K: Your business will receive a 1099-K from debit or credit-card providers if the total amount of gross payments for the provider adds up to over $20,000
1099-R: When you receive payments from a retirement plan, pension, annuity, or IRA you’ll receive a 1099-R.
1099-S: This form is used to record real estate transactions. If you sold property for less than $250,000 and it’s a primary residence, you don’t need to file a 1099-S. If you sold property for over $250,000, or for a property that will not function as a primary residence, you need to file this form as part of your individual taxes. If you use a lawyer to complete the sale (most people do) they’ll likely file the paperwork for you.
1099-SA: If you received payments from a healthcare spending account or medical spending account you’ll receive a 1099-SA.
SSA-1099: If you received Social Security benefits during the past calendar year, you’ll receive a SSA-1099.
Think of 1099 forms as a way to keep track of any significant sum of money ($600 is often the magic number) paid to or received by an individual who is not employed by the payer. Now that you know 1099s inside and out, tax season just got a little easier. When you’re ready, order printed 1099 forms and other tax forms.
