Do you know 1099 Information returns can be used to report attorney payments? Yes, businesses can EFile 1099 MISC to report attorney payments to the Internal Revenue Service.
Table of Contents
- What do you mean by “1099 MISC Gross Proceeds”?
- When are gross proceeds reportable on the 1099 MISC Tax Form?
- When you are not required to report attorney payments in 1099 MISC?
- Form 1099 MISC Claimant Attorney Fee reporting Rules
- Where to report attorney gross proceeds on 1099 MISC?
As per the IRS rules and guidelines, report the payments made to attorneys only if the attorney not an S or C corporation member. For example, if the attorney is an LLC, then the IRS requires to report the payments on the 1099 MISC Form Tax Return.
What do you mean by “1099 MISC Gross Proceeds”?
Gross proceeds- The payments made to attorneys for performing services on the course of your business or trade. As per the IRS norms, business reports gross proceeds paid to attorneys for performing legal services. Also, it only requires these gross proceeds paid to an individual, partnership, estate, or an LLC but not a corporation member i.e., C or S on a 1099 Information Return.
When are gross proceeds reportable on the 1099 MISC Tax Form?
In general, every business owner who makes gross proceeds in a tax year must EFile 1099 Misc if:
- Services performed on the course of legal activity
- The amount totaling exceeded $600 in a tax period.
- Compensations paid not for performing attorney’s services.
For example, if you paid a lawyer $700 for performing legal services, then the first thing you need to do is:
- Check whether the lawyer – an individual/Corporation.
- If corporation members make sure that the lawyer – C or S corporation
- Make sure that the amount made $600 or more to report it on the 1099 MISC Tax Form.
- Finally, identify whether the payment for performing legal service related to business or trade.
When you are not required to report attorney payments in 1099 MISC?
Generally, businesses required to report attorney payment in 1099 MISC if:
- The amount paid as claimant attorney fees.
- The attorney treated as C or S corporation
- Compensation made to them in the course of business doesn’t exceed $600.
Form 1099 MISC Claimant Attorney Fee reporting Rules
As per the IRS guidelines, claimant attorney fees not reported on the 1099 MISC Form. So, most businesses get confused when to report the claimant attorney fees under 1099 MISC. Here is the best example of when to report the claimant’s attorney fees under 1099 MISC box 10 gross proceeds.
Example:
An insurance company paid a claimant’s attorney fee of $10,000 to settle a claim. So, the insurance company can report the payment as gross proceeds in 1099 MISC box 10. Because the insurance company does not have a reporting requirement for the claimant’s attorney’s fees subsequently paid from these funds.
According to the IRS, Form 1099 MISC reporting rules apply whether or not:
- Payer receives legal services.
- Attorney’s and claimant’s names on one check
Where to report attorney gross proceeds on 1099 MISC?
As there are different boxes in 1099 MISC, you may get confused about where to report the attorney payments. Because filing form 1099 MISC with the amount reported in the incorrect box can lead to rejections. Furthermore, along with form 1099 rejection, you may face penalties and interests. This is due to insufficient time to correct the errors. Hence, the payer must report the taxable damages made to the claimant in box 3 or box 10 of 1099 MISC.
Use box 3 to report the taxable damages according to section 6041;
Box 10 used to report gross proceeds paid according to section 6045(f);
Finally, did you get the required info about the attorney payments? Start filing your new 1099 MISC return with Form1099Online. We are IRS certified and leading e-file provider. Tax practitioners or business owners can file bulk 1099 forms at a single click with a single e-file account.