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What is a 1099-MISC Form? | H&R Block

November 4, 2015 : Mike Slack - The Tax Institute

What is a 1099-MISC? It’s easy to understand why there’s some confusion about this particular form. The 1099-MISC can report a huge variety of things, and the way you report the information from this form can also vary widely.

IRS Form 1099-MISC is used to report exactly what its name implies: miscellaneous items of income. The treatment of amounts reported on this form generally depends upon which box of the form the income is reported in. Here we’ve included a breakdown of the major boxes in which most individuals have income reported.

Box 1 – Rents

If you own property that is rented to a business, you will likely receive a 1099-MISC with the amount of rent paid to you reported by the business in box 1. Amounts in this box are subject to ordinary income tax and are typically reported on Schedule E of Form 1040 as passive activity income. In limited situations, however, this income is reportable as trade or business income reportable on Schedule C and subject to the self-employment tax.

If you rent residential property to non-businesses don’t expect to receive a Form 1099-MISC with rents reported in box 1 Individuals are not required to issue Form 1099-MISC to report rent paid, so it would be rare the receive one. There is an exception, however, if rent is paid in the ordinary course of their trade or business.

Box 2 – Royalties

A taxable royalty is a payment made to you in consideration for the use or exploitation of property that you own. As this description implies, royalties are similar to rent and are typically taxed in the same manner. Royalties reported in box 2 are typically reported on Schedule E as well. These include royalties from oil, gas, or mineral properties, copyrights, patents and other intangible properties.

Again, in limited situations this income would be reported on Schedule C rather than Schedule E. For example, if you are actively engaged in authoring books and are receiving royalties from those books on a regular basis, this income would be a Schedule C trade or business income.

Box 3 – Other Income

If Form 1099-MISC is the catch-all of income reporting forms, box 3 is the catch-all of the catch-all. Examples of amounts included in this box are deceased employee’s wages paid to an estate or beneficiary, prizes and awards, damages and juror’s compensation. Income from box 3 is generally reported on line 21 of page 1 of your Form 1040 and taxed as ordinary income.

Box 6 – Medical and Healthcare Payments

Payments to physicians or to other suppliers or providers of medical or health care services of $600 or more made in the course of a trade or business are reported in this box. This includes payments made by medical and health care insurers under health, accident and sickness insurance programs.

Box 7 – Nonemployee Compensation

Box 7 is used to report nonemployee compensation paid to you by a business. Essentially, nonemployee compensation is income paid by a business for services you performed as an independent contractor. For most, this income is reported on Schedule C and is subject to both the regular income tax and the 15.3-percent self-employment tax.

We should note that in limited situations this income might avoid being subject to the self-employment tax. Also, you should never receive a Form 1099-MISC with amounts reported in this box from an employer that you also receive a Form W-2 from.

We outlined some of the most common payments that are reported on a 1099-MISC, but left out a few boxes (Box 8 – Substitute payments in lieu of dividends or interest, for example) because these are items most taxpayers never encounter. However, if you have items of income reported in these other boxes we suggest that you consult your tax professional.

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Mike Slack - The Tax Institute

Mike Slack - The Tax Institute

The Tax Institute

Mike Slack, JD, EA, is a senior tax research analyst at The Tax Institute. Mike leads research teams focused on business and investment tax issues.

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