For most taxpayers, filing tax forms is hardly straightforward. Form 1099-MISC, especially, includes lots of payments, and keeping track of them can be difficult. In this guide, we’ll look at a common section of the form that’s often hard to understand: Box 6.
By the end of the article, you’ll know the types of payments to report in the section and the ones to exclude. Let’s jump in.
Form 1099-MISC is an IRS form that taxpayers use to report several types of miscellaneous income such as legal fees, rents, awards, royalties, and healthcare payments. The form generally doesn’t cover the purchase of goods or tangible products. In the past, it included nonemployee income, but now such payments are reported in Form 1099-NEC.
The IRS requires payers to send the form to recipients by the end of January and file it by March 1. Recipients, though, don’t have to attach the form when filing their tax returns, as the IRS already receives the form earlier.
To report in Form 1099-MISC, businesses need to have paid via check, ACH transfers, cash, or other direct means. Credit card payments -- or payments through third-party entities -- are excluded, as they fall into Form 1099-K.
Box 6 includes medical and health care payments to nurses, physicians, or hospitals. Fees for both goods and services need to be reported, where taxpayers report the entire payment in box 6.
Goods may include pharmaceutical products such as vaccines and injections; services may include screening and lab services.
Generally, Box 6 comes into play when you satisfy these conditions as a payer:
Corporations often don’t receive Form 1099-MISC. But this is not the case when it comes to healthcare payments (and attorney fees). If you pay at least $600 to either an S corporation or a C corporation, the IRS requires you to report the fees in Box 6.
Note that you need to list the corporation as the recipient of the income payment rather than the person providing the services, meaning you won’t use a Tax Identification Number.
Payments from insurance firms to medical service providers and physicians are reportable in Box 6. If an insurer makes payments under health, accident, and sickness insurance programs, it needs to report the amounts.
Payments for insurance premiums, though, aren’t reported. Keep in mind that a premium is generally not classified as a “service”. If you buy an insurance policy, you’re not guaranteed to use it. It may come in handy when things go sour, but for the most part, this is not always the case.
So insurance policy payments can’t be considered by the IRS in the same way as drug screening or lab services.
Of course, as with most things concerning taxes, there must be exceptions, and Form 1099 Box 6 is no different. These exceptions include:
In the eyes of the IRS, pharmacies are more ‘retail’ than medical service providers, even though the organization lists them as one. Pharmacies operate like other establishments selling goods, meaning they follow different federal tax guidelines. So if you buy prescription drugs from a pharmacy, you don’t need to provide a Form 1009-MISC.
Nonprofit hospitals offer charity care to underprivileged patients without expecting any pay for their services. For this reason, the IRS considers such hospitals “tax-exempt”, provided they promote their original purpose -- either educational, scientific, religious, or charitable.
The tax-exempt status allows them to provide their charity services without having to pay any federal, local, or state taxes. And the freedom from taxes means they incur much lower costs when treating patients.
Now, if you make any payments to nonprofit hospitals, then you don’t need to record the amounts in box 6. Likewise, with government-owned facilities, you don’t record any payments, as they’re also exempt from taxes.
Box 1 covers payments for renting machinery, office space, work equipment, or even pasture. Payments made need to 1099 contractors to be at least $600 over the course of the year, just like with box 6.
Renting and leasing medical equipment falls in box 1, too. So, if you lease medical beds, defibrillators, or sterilizers, then the payments don't appear in box 6, even though the supplies are for medical purposes.
A health reimbursement arrangement (HRA) is a perk that some businesses offer their workers to cater for their medical expenses. Employers set up the arrangement and decide the amount to set aside for the plan.
Workers can then request to be reimbursed for their health care expenses up to the limit set by the employer. Remember that reimbursements are typically tax-free if they’re used for qualified healthcare expenses.
Similar to HRAs, flexible spending accounts are also set up by employers for workers. Workers contribute a percentage of their regular earnings, and sometimes employees can also chip in.
FSAs offer huge tax perks, as they help workers reduce their tax liabilities. Because the money used to fund the arrangement is deducted from your paycheck before taxes, you save whatever percentage of the money you’d have paid in taxes.
HRA and FSA funds can help you buy medical supplies, prescription medications, and over-the-counter drugs. Medical payments from these funds, however, are excluded from box 6 reporting requirements.
Traditionally, companies used Form 1099-MISC to report payments of at least $600 to 1099 nonemployees -- such as independent contractors and freelancers -- for specific payments made in the course of trade or business. Such payments often represented nonemployee compensation and belonged in 1099-MISC’s box 7.
But due to recent changes from the IRS, reporting of nonemployee compensation has shifted from box 7 in 1099-misc to Form 1099-NEC.
Now the main difference between 1099-NEC and 1099-MISC is that companies only use the latter form to report nonemployee compensation. For other income such as prizes, rent, or royalties, companies need to use Form 1099-MISC.
If you’re an independent contractor, you’ll now receive form 1099-MISC to report income received that’s not subject to self-employment tax.
That said, even with the new form-1099-NEC, medical and health care payments still belong in box 6 of form-1099-MISC.
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