How to Understand a 1099-MISC
Many taxpayers will never receive a Form 1099-MISC, which is a type of tax form known as an information return. If you work as an employee, you will generally receive Form W-2 from your employer at the end of the year, showing all of the income you received and reflecting any deductions of payments you made. However, if you are an independent contractor or otherwise receive payment for services while classified as a nonemployee, you will receive Form 1099-MISC instead. Form 1099-MISC contains much of the same information as a W-2, but usually does not reflect any deductions for taxes.
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Instructions
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Verify that your personal information is correct. Since companies sometimes send thousands of 1099-MISC forms out at the end of the year, it is entirely possible that you receive one in error. Confirm that you received the income from the company issuing the 1099-MISC, and verify that all of your identifying information -- such as name, address and Social Security number -- are correct.
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Get a copy of the Internal Revenue Service instructions for Form 1099-MISC (see References). Although many of the boxes on Form 1099-MISC are self-explanatory, some are more obscure. You may need formal instruction from the IRS to understand the entries in some of the boxes.
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Look at the boxes that have numeric entries on your Form 1099-MISC. Generally, only a few of the boxes on any Form 1099-MISC you receive will have anything in them.
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Read the description of any boxes showing income entries. For example, if your 1099-MISC shows $1,200 in Box 2, it means you received a royalty of that amount from the issuing company. Each box has a short title describing the amounts in the box, but you can consult the IRS guide for Form 1099-MISC for further descriptions. One of the most common income boxes is Box 7, "nonemployee compensation." If you are a consultant or any type of independent contractor, your income payments will typically show in this box. Other boxes are reserved for more specific types of income, such as if you received income as an attorney, if you are a health professional who received medical or health care payments or if you received any amounts as a fishing boat operator. Those income payments to you will show in boxes 14, 6 or 5 respectively.
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Review the amounts in your deductions boxes. You can tell if an amount listed on your Form 1099-MISC is a deduction from your pay based on the description in the box, as well as from the IRS instructions. For example, amounts in Box 4 show any federal income tax that was withheld from your payments. Box 16 shows any state tax withheld from your pay.
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Follow the instructions on the back of your Form 1099-MISC. The IRS provides brief instructions on the back of Form 1099-MISC to show you how to use the information on your 1099 when you file your taxes. You must generally transfer amounts on your 1099-MISC to your tax-filing form, usually meaning Form 1040. Often, income on a 1099-MISC reflects business or self-employment income, and you may owe self-employment tax on those amounts. Follow IRS instructions to determine how to report your 1099-MISC income.
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