Payments to report on Form 1099 Best answer on the web

Jan 08, 2009 @ 06:05 am by webmaster
  • I would like to know if reimbursing an independent contractor for travel expenses incurred in the course of their business are considered reportable payments on Form 1099. The independent contract submitted an expense report for his airfare, which our firm is reimbursing him for, however we do not know whether we should provide him with a 1099 due to this reimbursement. Please advise if reimbursed travel expenses to an independent contractor are reportable on Form 1099-MISC box 7.


  • Thank you so much for the great response. The University example was really helpful and the links to your research are invaluable.


  • Dear jasonaccountant,

    You are welcome, I'm glad to hear all is well. Yes, I like the University example too, it really makes things quite clear in a few sentences.
    Thank you for such a nice note, it's very nice of you.
    Sincerely,
    hummer


  • Hi jasonaccountant,

    Given that the contractor submitted an expense report, the travel expenses should not be reported on 1099-MISC. If he hadn't accounted for the expenses, then you would've reported the amount as income on the 1099.
    IRS: Instructions for Form 1099-MISC
    Examples. The following are some examples of payments to be reported in box 7.
    "A fee paid to a nonemployee, including an independent contractor, or travel reimbursement for which the nonemployee did not account to the payer, if the fee and reimbursement total at least $600." http://www.irs.gov/instructions/i1099msc/ar02.html

    If you make the payment under an accountable plan, deduct it in the category of the expense paid. For example, if you pay an employee for travel expenses incurred on your behalf, deduct this payment as a travel expense. If you make the payment under a nonaccountable plan, deduct it as wages." http://www.irs.gov/publications/p535/ch02.html

    Rules for Independent Contractors and Clients
    "This section provides rules for independent contractors who incur expenses on behalf of a client or customer. The rules cover the reporting and substantiation of certain expenses discussed in this publication, and they affect both independent contractors and their clients or customers." Accounting to Your Client
    If you received a reimbursement or an allowance for travel, entertainment, or gift expenses that you incurred on behalf of a client, you should provide an adequate accounting of these expenses to your client. If you do not account to your client for these expenses, you must include any reimbursements or allowances in income. You must keep adequate records of these expenses whether or not you account to your client for these expenses." http://www.irs.gov/publications/p463/ch06.html#d0e7532

    Here is a good example:

    Tax Reporting Requirements and Methods of Payment
    "The University is required to report honorarium payments equal to or greater than $600 on Form 1099-MISC; therefore, a Social Security number from the recipient is required. The entire amount of the honorarium and related travel expenses will be reported on the recipient's Form 1099-MISC unless the recipient chooses to document travel expenses separately and provide appropriate receipts within 60 days after the expenses were paid or incurred." To accommodate appropriate Form 1099-MISC reporting, departments may use one of the two methods to document the honorarium payment. * Lump sum payment: Indicate the total amount of the honorarium including any travel expenses incurred by the recipient. This full amount will be reported as taxable income on Form 1099-MISC. * Split payment: Indicate the honorarium amount separately from the documented travel expenses. Only the honorarium amount will be reported as taxable income on Form 1099-MISC." http://www.obfs.uillinois.edu/manual/central_p/sec17-3.html

    I hope this helps. If you have any questions, please post a clarification request and wait for me to respond before closing/rating my answer.
    Thank you,
    hummer

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