A Form 1099-MISC is used to report miscellaneous income. If you’ve hired freelancers or independent contractors (or maybe you are one yourself), you might know how confusing tax forms can get, especially during tax season. One of the forms you’ve likely come across is called a 1099-MISC, which covers miscellaneous income.
In this blog post, we’ll go over the nuances of Form 1099-MISC, including what it’s used for, major changes recently made, and toward the end, we offer the easiest way for businesses to go about collecting 1099 forms.
What is Form 1099-MISC: Miscellaneous Income?
Form 1099-MISC is a tax form used to report miscellaneous income to the IRS. It’s part of a larger collection of 1099 forms that are used to keep record of non-traditional income that doesn’t fall into wages, salaries and tips. A Form 1099-MISC categorizes multiple types of payments beyond simple, unexpected income and is essential to many kinds of costs, from rents collected by a landlord to fishing boat proceeds. This tax form helps those receiving these unique income streams to comply with federal and state income tax laws.
The 1099-MISC vs 1099-NEC Split
In 2020, the IRS reintroduced Form 1099-NEC (“Non-Employee Compensation”) to separate contractor payments from miscellaneous income.
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Use Form 1099-NEC for payments of $600 or more made to non-employees—freelancers, contractors, or anyone providing services.
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Use Form 1099-MISC for other types of payments (rents, prizes, royalties, etc.) not covered by 1099-NEC.
Keeping these forms straight is crucial for compliance. Many small businesses still mistakenly report contractor payments on 1099-MISC.
What is a Form 1099-MISC used for?
A 1099-MISC covers many potential income streams. The IRS states that this form must be given to each person who has been paid the following:
- At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
- At least $600 in:
- Rents-Prizes and awards
- Other income payments
- Generally, the cash paid from a notional principal contract to an individual, partnership or estate
- Any fishing boat proceeds
- Medical and health care payment
- Crop insurance proceeds
- Payments to an attorney (though there are additional rules for this)
- Section 409A deferrals
- Non-qualified deferred compensation
This covers a large span of items that count as non-traditional income. Read through the following PDF for complete details and instructions when filing Forms 1099-MISC and the new 1099-NEC.
How much do you have to make to claim a 1099?
Anything over the $600 mark typically requires a Form 1099-MISC filing. A good example is in the case of brokers and broker payments taking profit from selling stocks in lieu of dividends. Another example could be a hair salon that collects rent payments for their chairs.
Coming change: Starting with tax year 2026, the reporting threshold for most 1099-MISC and 1099-NEC forms will increase to $2,000 (adjusted annually for inflation) under new federal legislation.
How to collect Form 1099-MISC from your vendors
Your first step in collecting 1099-MISC forms from U.S. based vendors is to give them a W-9 in order to gather tax information such as a taxpayer identification number (TIN). Once you have that information, you can use it to fill out their Form 1099-MISC. Note that if payments were made with a credit or payment card or certain other payments like third-party network transactions, you need to report this on a Form 1099-K and don’t have to report it on a 1099-MISC.
Use Routable to streamline your 1099 collection
It’s often troublesome for businesses to pay 1099 vendors because they aren’t on a traditional payroll. But it’s becoming all the more important for fast-growing industries to streamline the 1099 payment process and its tax-related information. For example, the gig industry, which relies on contingent workers, has shown tremendous growth over the last year with no sign of slowing down.
Additionally, it isn’t uncommon for rules to change as they did for the 1099-MISC and 1099-NEC, which is still causing confusion for everyone involved. That’s where an automated solution like Routable can save your company significant pain and time.
Routable offers services for collecting 1099s and paying contractors such as:
Direct deposit for contractors
Small business owners enjoy the confidence—and assurance—that once their invoice has been approved, they’ll see their payment directly in their account.
Easy ACH payments
Fast, reliable ACH payments means contractors submit one-time, secure, encrypted bank account information without having to share sensitive documentation over email. Payments are processed quickly and efficiently throughout the lifecycle of the relationship.
Mass payouts to save time
Paying multiple freelancers and gig workers at once can be time consuming. Routable processes hundreds of payments at once with CSV uploads while identifying duplicates or potential errors. You can also leverage our API if you have developer support.
Centralize your financial information
Collect 1099 forms and store them in one easy-to-search format. As part of your onboarding process, you can collect W-9s to gain all of the tax information you need to successfully send out your 1099-MISC forms. Our software also gives vendors the freedom to manage their own bank account information and W-9 details through a secure site to make them feel safe throughout the process.
Conclusion
Even though there’s a lot to keep in mind with taxes and the IRS, a little knowledge goes a long way, and with a bit of understanding, it can put you that much further ahead. Accurate documentation is essential, especially in a digital world, but thankfully, that’s being made easier by the day. Using accounting software such as Routable can help empower your team by saving time for them, while also improving vendor relationships through smooth and easy onboarding processes.