When you’re a small business owner issuing tax forms to an individual, there are two different forms you can use. If the person in question is your employee, you fill out a W-2 form. If the person isn’t your employee, however—if they’re an independent contractor, for example—you fill out a 1099 form, instead.
Most of the fields in the 1099 form are self explanatory but some (fishing boat proceeds? Golden parachute payments?) can be pretty confusing, especially if this is your first year issuing one.
Our handy how-to guide breaks down the 1099 form for you box by box, step by step.
Let’s get started!
Box 1, Rents: If you paid rent for your business space to an individual, this is where you enter the total amount you paid during the calendar year. You can also enter amounts for things like equipment rentals, as long as they’re paid to an individual.
Box 2, Royalties: If you are paying someone for property rights (whether physical, like mining, oil, or gas; or intellectual, like in the case of a patent or copyright) enter the total amount you paid here.
Box 3, Other Income: Basically if you provided a taxable payment to someone over the amount $600 and it doesn’t fit in any of the other boxes, it goes in Box 3. Need more details? Pub 525 gets right into the nitty gritty of what qualifies as “other income”.
Box 4, Federal Income Tax withheld: This box is where you’ll reports any taxes that you withheld from the amount entered in Box 3.
Box 5, Fishing Boat Proceeds: This field likely doesn’t apply to you, but on the off chance that you are 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 to them here.
Box 6, Medical and health care payments: Did your business make a payment of $600 or more to an individual who provided medical or health care services this year? Report that amount here.
Box 7, Nonemployee compensation: This is the box that you’ll most likely use to report any payments paid to a contractor or other non-employee. Not sure if a payment qualifies? The IRS provides these four guidelines for determining if this 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, in some cases, a corporation.
- You made payments to the payee of at least $600 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 did pay someone a sum of at least $10 instead of dividends or if you are paying someone tax-exempt interest as a result of borrowing their securities, that amount gets entered here.
Box 9, Payer made direct sales of $5,000 or more of consumer products to a buyer (recipient) for resale: This field is actually fairly self-explanatory. Check this box if you sold products directly to someone so that they could then sell them to other people.
Box 10, Crop insurance proceeds: Are you an insurance company issuing this 1099 form to a farmer due to crop insurance payments? Nope, we didn’t think so. Most of us will never have a reason to use Box 10.
Box 11 & 12: Fun tax fact: In the past, the IRS used these boxes to record any foreign taxes paid but these days this information is reported on a separate form. They couldn’t just delete these two boxes without also renumbering boxes 13-18, so they just left them blank. (You should, too.)
Box 13, Excess golden parachute payments: Another one you can probably skip – you’ll only ever enter an amount in Box 13 if you paid a disqualified person like a shareholder or highly paid person at least three times that person’s typical amount.
Box 14, Gross proceeds paid to an attorney: If you’re issuing this 1099 form to an attorney for any legal services in an amount greater than $600, this is where you enter the amount you paid them.
Box 15a, Section 409A deferrals: Don’t worry about entering anything in this box. (If you’re a tax nerd, super curious, or just looking for a little light reading, Internal Revenue Bulletin 2008-52 can enlighten you.)
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 in this box. (And if you have no idea what we just said, don’t worry, Box 15b most likely doesn’t apply to you. Let’s move on!)
Box 16, State tax withheld, Box 17, State/Payer’s state no. and Box 18, State income: If your state participates in the Combined Federal/State Filing Program you’ll need to complete these boxes. Each field is divided in two in case you need to report in two states.
In Box 16, record any State tax that you withheld from your payment to this contractor.
In Box 17, enter the state’s abbreviated name and your state identification number.
And in Box 18, enter the amount of the state payment.
There are several different kinds of 1099 forms that you might receive as an individual and several others that you may issue yourself 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:
This is the form that your business will usually use, and is issued to your contractors or other non-employees.
If you own stock and you receive over $10 in payments, you’ll need to file a 1099-DIV.
You’ll receive this if a financial institution has paid you more than $10 in interest in a calendar year. (Lucky you!)
If you forgive a debt of over $600 you are required to file a 1099-C form. 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.
You will receive a 1099-G if you receive payments from the government such as unemployment insurance, tax refunds, or grants.
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 and there are over 200 of them.
You’ll receive this form when you receive payments from a retirement plan, pension, annuity, or IRA.
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, however, or for a property that will not function as a primary residence you will file this form as part of your individual taxes. Don’t worry though, if you use a lawyer to complete the sale (as most people do) they will likely file the paperwork for you.
You will have a 1099-SA issued to you if you received payments from a health care spending account or medical spending account.
Likewise, the SSA-1099 is issued to you if you received Social Security benefits during the past calendar year.
Just think of the 1099 series of 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. And now that you know 1099s inside and out – the different types, and when and how to fill out each and every field – tax season just got a little bit easier.