The university is required to file Form 1099-NEC/MISC, Non-Employee Compensation/Miscellaneous Income, for each calendar year if total payments made to the recipient are for (1) at least $10.00 in royalties, or (2) at least $600.00 in rents, services (including parts & materials), prizes and awards, medical/health care payments, legal settlements, and other income payments.
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The IRS does not require a 1099-NEC/MISC or any tax statement be issued. Chapter one in the IRS Publication 970 Tax Benefits for Education provides the information to determine the payment’s taxability (not wages) and report on an individual tax return.
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The IRS does not require some payments to be reported on 1099-NEC/MISC forms although they may be taxable to the recipient. These include:
- Payments to a corporation (with the exception of medical/health care and legal fees)
- Payments for merchandise
- Payments of rent to real estate agents
- Wages paid to employees (report on form W-2)
- Accountable plan payments. Payments made to an employee under an accountable plan are not reportable. The requirements of an accountable plan are found in Treasury Regulation 1.62-2 and they require that the payee must:
- Establish the business purpose and connection for the expenses
- Substantiate or document the expenses claimed to the payor within a reasonable time period
- Return to the payor any amounts in excess of the substantiated expenses within a reasonable time period
1099-Eligible Payments by the University
1099-NEC
Includes fees for services performed or other forms of compensation for services performed for the university by an individual who is not a university employee.
The IRS assumes payments reported in box 1 to be subject to self-employment tax.
If the following four conditions are met, a payment generally is reportable as non-employee compensation:
- The payment was made to someone who is not a university employee
- The payment was made for services in the course of the university’s trade or business
- The payment was made to someone other than a corporation (except for legal fees), i.e., an individual, partnership, and estate
- Payments were made to the payee of at least $600.00 during the calendar year
Examples of payments reported in Box 1 are:
- Professional service fees (attorneys, accountants, architects)
- Payment for services, including parts or materials used to perform the services if supplying the parts or materials was incidental to providing the service.
- Payments to non-employee entertainers for services.
- Honorariums
- Guest lecturers
- Independent contractors
- Legal fees
- Reimbursement payments to any of the above in Box 1 when receipts or documentation is not provided are 1099able.
1099-MISC
Box 3 is for other income required to be reported on Form 1099-MISC that is not reportable in one of the other boxes on the form.