Internal Revenue Service Form 1099-MISC is the tax form that must be filed to report annual payments over $600 that businesses make to independent contractors — people who perform services but are not employees.
For example, real estate brokers must file 1099-MISC forms to report commission payments to real estate agents who are independent contractors.
No new reporting requirements for 2011, 2012
Under long-standing rules, there have been several important exceptions to the requirement to file a 1099 form. For example, 1099s need not be filed if an independent contractor is incorporated, with exceptions for legal and medical corporations.
Also, because the 1099 requirement applied only to businesses, it did not apply at all to landlords who were investors for tax purposes.
The massive federal health care law passed last year was scheduled to eliminate these important exceptions. Under the bill, starting in 2011, all landlords would have had to comply with the 1099 reporting rules, even those who are investors for other tax purposes.
In addition, starting in 2012, the exemption for corporations was scheduled to be lifted, with incorporated contractors and unincorporated contractors treated the same as for reporting purposes.
These changes were supposed to make it harder for independent contractors to underreport their income and thus help reduce the "tax gap" — the difference between what taxpayers owe and what they actually pay the government each year.
However, these changes met extremely fierce opposition in the business community. They would have greatly increased the number of 1099 forms that had to be filed each year and made business’ bookkeeping burdens worse than ever.
Fortunately, the government listened to these complaints. A law retroactively repealing the new 1099 filing requirements (the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011) was passed by Congress and signed by the president in April.
Thus, the old 1099 rules continue to apply. Investor landlords and incorporated independent contractors can rest easy.
Tax reporting for commission rebates
In today’s difficult housing market it has become commonplace for brokers to offer buyers a cash rebate of a portion of their commission. A common question many brokers and buyers have is whether such rebates are taxable income that must be reported to the IRS on Form 1099-MISC. The answer is no.
The IRS says that a cash rebate paid to a buyer of property at or after closing is an adjustment in the price, and is therefore not taxable income to the buyer. Rather, the buyer should subtract the amount of the rebate from the home’s basis. This will, of course, increase any potential profit when the home is sold.
Since they are not taxable income, such rebates need not be reported on Form 1099-MISC. Thus, brokers should not send 1099s to buyers reporting such rebates. Any buyer who has received a 1099 that reports such a payment in error should ask the broker to correct or withdraw it.
Stephen Fishman is a tax expert, attorney and author who has published 18 books, including "Working for Yourself: Law & Taxes for Contractors, Freelancers and Consultants," "Deduct It," "Working as an Independent Contractor," and "Working with Independent Contractors." He welcomes your questions for this weekly column.