Instructions For Form 1099-Misc - 2006 (Page 4 of 31) in pdf

are met. See Box 3. Other Income on page MISC-4 for

the date and amount of each cash payment made during the

additional requirements.

year, but you must report only the total amount paid for the year

on Form 1099-MISC.

Canceled debt. A canceled debt is not reportable on Form

1099-MISC. Canceled debts are required to be reported on

“Fish” means all fish and other forms of aquatic life. “Cash”

Form 1099-C, Cancellation of Debt, by financial institutions,

means U.S. and foreign coin and currency and a cashier’s

credit unions, federal government agencies, certain agencies

check, bank draft, traveler’s check, or money order. Cash does

connected with the Federal Government, and an organization

not include a check drawn on your personal or business

where the lending of money (such as finance and credit card

account.

companies) is a significant trade or business. See the

Deceased employee’s wages. If an employee dies during the

Instructions for Forms 1099-A and 1099-C.

year, you must report the accrued wages, vacation pay, and

Reportable payments to corporations. The following

other compensation paid after the date of death. If you made

payments made to corporations generally must be reported on

the payment in the same year the employee died, you must

Form 1099-MISC.

withhold social security and Medicare taxes on the payment

•

Medical and health care payments reported in box 6.

and report them only as social security and Medicare wages on

•

Fish purchases for cash reported in box 7.

the employee’s Form W-2 to ensure that proper social security

•

Attorneys’ fees reported in box 7.

and Medicare credit is received. On the Form W-2, show the

•

Gross proceeds paid to an attorney reported in box 14.

payment as social security wages (box 3) and Medicare wages

•

Substitute payments in lieu of dividends or tax-exempt

and tips (box 5) and the social security and Medicare taxes

interest reported in box 8.

withheld in boxes 4 and 6; do not show the payment in box 1 of

•

Payments by a federal executive agency for services

Form W-2.

(vendors) reported in box 7.

If you made the payment after the year of death, do not

report it on Form W-2, and do not withhold social security and

Federal executive agencies may also have to file Form

Medicare taxes.

8596, Information Return for Federal Contracts, if a

contracted amount for personal services is more than

Whether the payment is made in the year of death or after

CAUTION

$25,000. See Rev. Rul. 2003-66, which is on page 1115 of

the year of death, you also must report the payment to the

Internal Revenue Bulletin 2003-26 at

estate or beneficiary on Form 1099-MISC. Report the payment

irb03-26.pdf for details.

in box 3 (rather than in box 7 as specified in Rev. Rul. 86-109,

1986-2 C.B. 196). See the Example below. Enter the name and

Payments to attorneys. The term attorney includes a law firm

TIN of the payment recipient on Form 1099-MISC. For example,

or other provider of legal services. Attorney’s fees of $600 or

if the recipient is an individual beneficiary, enter the name and

more paid in the course of your trade or business are reportable

social security number of the individual; if the recipient is the

in box 7 of Form 1099-MISC.

estate, enter the name and employer identification number of

Gross proceeds paid to attorneys. Under section 6045(f),

the estate. The general backup withholding rules apply to this

report in box 14 payments to an attorney made in the course of

payment.

your trade or business in connection with legal services, for

However, death benefits from qualified and nonqualified

example, as in a settlement agreement, unless the attorney’s

deferred compensation plans paid to the estate or beneficiary of

fees are reportable by you in box 7. Generally, you are not

a deceased employee are not reportable on Form 1099-MISC

required to report the claimant’s attorney’s fees. For example,

but are reportable on Form 1099-R. See the Instructions for

an insurance company pays a claimant’s attorney $100,000 to

Forms 1099-R and 5498.

settle a claim. The insurance company reports the payment as

gross proceeds of $100,000 in box 14. The insurance company

Example. Before Employee A’s death on June 15, 2006, A

does not have a reporting requirement for the claimant’s

was employed by Employer X and received $10,000 in wages

attorney’s fees subsequently paid from these funds.

on which federal income tax of $1,500 was withheld. When A

died, X owed A $2,000 in wages and $1,000 in accrued

These rules apply whether or not the legal services are

vacation pay. The total of $3,000 (less the social security and

provided to the payer and whether or not the attorney is

Medicare taxes withheld) was paid to A’s estate on July 20,

exclusive payee (for example, the attorney’s and claimant’s

2006. Because X made the payment during the year of death, X

names are on one check). However, these rules do not apply to

must withhold social security and Medicare taxes on the $3,000

wages paid to attorneys that are reportable on Form W-2 or to

payment and must complete Form W-2 as follows:

profits distributed by a partnership to its partners that are

•

Box 1 — 10000.00 (does not include the $3,000 accrued

reportable on:

•

wages and vacation pay)

Schedule K-1 (Form 1065), Partner’s Share of Income,

•

Box 2 — 1500.00

Deductions, Credits, etc., or

•

Box 3 — 13000.00 (includes the $3,000 accrued wages and

Schedule K-1 (Form 1065-B),Partner’s Share of Income

vacation pay)

(Loss) From an Electing Large Partnership.

•

Box 4 — 806.00 (6.2% of the amount in box 3)

Payments to corporations for legal services. The

•

Box 5 — 13000.00 (includes the $3,000 accrued wages and

exemption from reporting payments made to corporations does

vacation pay)

not apply to payments for legal services. Therefore, you must

•

Box 6 — 188.50 (1.45% of the amount in box 5)

report attorneys’ fees (in box 7) or gross proceeds (in box 14)

Employer X also must complete Form 1099-MISC as follows:

as described above to corporations that provide legal services.

•

Boxes for recipient’s name, address, and TIN — the estate’s

Taxpayer identification numbers (TINs). To report

name, address, and TIN.

payments to an attorney on Form 1099-MISC, you must obtain

•

Box 3 — 3000.00 (Even though amounts were withheld for

the attorney’s TIN. You may use Form W-9, Request for

social security and Medicare taxes, the gross amount is

Taxpayer Identification Number and Certification, to obtain the

reported here.)

attorney’s TIN. An attorney is required to promptly supply its

TIN whether it is a corporation or other entity, but the attorney is

If Employer X made the payment after the year of death, the

not required to certify its TIN. If the attorney fails to provide its

$3,000 would not be subject to social security and Medicare

TIN, the attorney may be subject to a penalty under section

taxes and would not be shown on Form W-2. However, the

6723 and its regulations, and you must backup withhold on the

employer would still file Form 1099-MISC.

reportable payments.

Employee business expense reimbursements. Do not use

Fish purchases. If you are in the trade or business of

Form 1099-MISC to report employee business expense

purchasing fish for resale, you must report total cash payments

reimbursements. Report payments made to employees under a

of $600 or more paid during the year to any person who is

nonaccountable plan as wages on Form W-2. Generally,

engaged in the trade or business of catching fish. Report these

payments made to employees under an accountable plan are

payments in box 7. You are required to keep records showing

not reportable on Form W-2, except in certain cases when you

MISC-2

Instructions For Form 1099-Misc - 2006 Page 4

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