I’ve beat this topic to death in years past, so I won’t go into all the intricate details in this blog. So please… before you ask questions about Box 3 vs Box 7, please take time to read through questions from all of the *wishful thinking* people who have gone before you.
You can find those articles here and here.
The IRS has not lightened up on their opinion on this topic. If anything, they’re getting tougher and the fines are increasing.
So, if you paid Joe-Joe $100 in January 2018, then $500 (or more) at any time during the year REGARDLESS of what you *called* the payment, you most likely need to file a form 1099-misc to report the income. The IRS does not care if you called it a “love gift”. If Joe-Joe performed a service for you, and you *love gifted* him some $$$ you also need to *love gift* him a form 1099-misc too.
You must file a copy of the 1099-misc with the IRS by January 31st.
SOME exceptions apply. Here are a few of them:
- If you made the payments with a credit or debit card (the bank merchant will send him/her a tax form)
- If your payment was paid in the name of a corporation, including a limited liability company (LLC) that is treated as a C or S corporation, or 501c3 non-profit corporation. There are some exceptions to this too.
- If you made payments for merchandise, telegrams, telephone, freight, storage, and similar items.
- If you made payments of rent to real estate agents or property managers. However, the real estate agent or property manager must use Form 1099-MISC to report the rent paid over to the property owner.
If you made payments to an attorney as a part of your trade or business, you may need to issue a 1099-misc to them. It all depends on the nature of the transaction.
What ifs…
If the person you paid refuses to provide you with their proper social security number and other needed information, you are still responsible to report that person’s income to the IRS.
Here’s what you should do:
- Send the payee a written request for his/her information, stating the following legal code: section 6109 of the Internal Revenue Code and accompanying Treasury Regulations. See I.R.C. § 6109(a)(2), (3); see also Treas. Reg. § 301.6109-1(b)(1) (“A U.S. person whose number must be included on a document filed by another person must give the taxpayer identifying number so required to the other person on request.”).
- If you still owe the payee for services performed, or if you plan to continue using his services, immediately begin backup withholding, at the rate of 24 percent, on any reportable payments made to the payee (report and remit this amount to the IRS).
- For any payments already made to the contractor, you will still submit a form 1099-misc on time, however, include a notation that the payee failed or refused to provide his taxpayer identification number. NOTE: You may still incur a $50 IRS fine for not having the information to issue a correct form 1099. The payee will incur a $500 fine as a civil penalty.
In the future, NEVER issue a payment of any amount until you have a form W-9 on file for the payee. This will help prevent situations like this from happening. It also alerts the contractor of your intention to report the income to the IRS at year-end.
OK… I’m done with this subject.
Again, if you have questions, just post them here. HOWEVER if our question is about box 3 vs box 7, please read the articles and comments in my prior blogs here and here . Been there. Done that!
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