In general, a 1099-MISC need only be issued for payments made to unincorporated individuals or partnerships. Payments made to a corporation generally are not reportable on a 1099-MISC.
Note the use of the word “generally” in the previous paragraph. There are two exceptions to the “no 1099 to a corporation” rule:
- Payments made to attorneys for legal services. Such payments must always be reported on a 1099-MISC, regardless of how the law firm is structured.
- Payments made for medical services.
In regards to #2, the IRS released a Private Letter Ruling in October 2013 in which the IRS ruled that payments made to a veterinarian count as payments for “medical services.” So a business that pays a veterinarian would need to issue the veterinarian a 1099 even if the veterinarian is incorporated.
One important note to make on the “1099 to the veterinarian” rule is that this applies only to business transactions. Individuals who take the family pet to the vet don’t need to issue a 1099. But payments made by a business (for example, farmers, pet stores, zoos, etc.) to a veterinarian would need to be reported on a 1099.
Form 1099-MISC and Payments to Employees
In most circumstances, any payments that a business makes to its employees will not be reported on a 1099-MISC. Instead, if those payments need reported, they will be reported on the employee’s W-2.
However, a 1099-MISC may need to be issued if an employee dies during the year. The employer will need to issue a 1099-MISC to report accrued wages, vacation pay, etc. paid after the date of death. If payment is made in the same year the employee died, the employer must withhold Social Security and Medicare taxes on that payment and report that payment on the employee’s W-2 as Social Security and Medicare wages (boxes 3 and 5 of the W-2). The payment should not be shown in gross taxable wages (box 1 of the W-2).
A further discussion of payments to deceased employees is beyond the scope of this article.
In the next part, we’ll discuss how to get 1099s filed with the IRS.
“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”