Using a 1099-MISC Form for 2021 Taxes

Find out more about the 1099-MISC form including who submits it, who needs it, and how it relates to filing your 2021 taxes as a small business owner.

Did your small business hire freelance individuals or independent contractors this year?  Did their compensation total $600 or more for the calendar year? While for many years you would have reported their compensation on Form 1099-MISC, this year you will be reporting their payments on Form 1099-NEC. However, Form 1099-MISC will continue to be used for anyone who received at least $10 in royalties or at least $600 in:

• Rents.
• Prizes and awards.
• Other income payments.
• Medical and health care payments.
• Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
• Payments to an attorney in connection with a legal settlement.
• Any fishing boat proceeds.

A key takeaway is that you may no longer include sub-contractor/freelance payments of compensation on Form 1099-MISC – such payments must be reported on Form 1099-NEC. However, all other uses for the 1099-MISC form will remain the same for the 2021 tax year.

When should your business file Form 1099-MISC?

For any individual or partnership to whom you paid $600 or more in one of the categories listed above, your small business should file Form 1099-MISC with the IRS and furnish a copy to the recipient. Do not file or furnish Form 1099-MISC to contractors or freelancers because they should receive a 1099-NEC form.

Filing Form 1099-MISC

The 1099-MISC form includes several copies. Copy A reports what you, the small business owner, paid and this copy is filed with the IRS. Copy 1 will be submitted to the state tax department, if applicable. The same information will be included on Copy B, but this will go to the recipient and Copy 2 will also be furnished to the recipient for inclusion with their state income tax return, if applicable. Finally, Copy C remains with you, the small business owner, for your records.

Frequently Asked Questions

What do I include in 1099-MISC Box 7-Direct Sales?

Know someone participating in a multi-level marketing company? Box 7 is the place to indicate direct sales of $5,000 or more of consumer products to a buyer on a buy-sell, a deposit-commission, or other commission basis for resale anywhere other than in a permanent retail establishment.  There is no need to enter a dollar amount in this box.

What do I include in 1099-MISC Box 3-Other Income?

You did it. You landed a spot on Jeopardy, made it to the final round, and won. Not only would you receive a huge check, but you would also receive a 1099-MISC form with Box 3 completed. If you, as a small business owner, provided any prizes, awards, or other income of $600 or more without another designated box to report this information, then such income will go in Box 3 on the 1099-MISC form for your recipient.

Where can I get 1099-MISC forms?

You must order the free, official, scannable versions directly from the IRS (oftentimes available as a link from your tax software) or they can usually be found at an office supply store. The IRS can assess a penalty (up to $280) for every non-scannable 1099-MISC form you file. As long as you have fewer than 250 forms to file, you can prepare and file paper forms.  If you cross the 250 form threshold, you will need to electronically file the 1099-MISC forms. 

What are the deadlines for filing 1099-MISC forms?

Small business owners must distribute 1099-MISC forms to taxpayers by January 31. However, you have until February 28, if you file paper forms with the IRS, or March 31, if you file electronically your 1099 forms with the IRS.

We Can Help

The team at Decimal provides managed, online bookkeeping with real-time support. You’ll have year-round support, data, and guidance from accountants dedicated to your small business’s success.

Getting ready for taxes is difficult, and it’s that much harder if your books are not in order. Decimal provides the bookkeepers and resources to support your business during tax prep and throughout the year. Contact Decimal today and visit with an accounting specialist dedicated to your small to medium-sized business success.

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