Farmers and ranchers regularly pay for services from individuals who are not their fulltime employees. Typical compensation includes wages or other payments to self-employed workers and contractors, and rent paid to landowners1. Under IRS regulations, a 1099 form should be issued to certain non-employees who perform services and are paid over $600 in a calendar year. Reporting this information to the IRS helps insure the receiver pays appropriate taxes on the income. This requirement can be broken down into three elements: (1) $600 or more paid during the calendar year; (2) to someone who is an individual, LLC, partnership, or trust; and (3) for services. These forms are sent early in the calendar year so recipients have adequate time for tax preparation.
About 1099 Forms
Any firm or individual who makes payment of $600 or more to an independent contractor, self-employed worker, or landowner during the calendar year must report this on Form 1099-MISC. Payers are responsible for completing and sending a Form 1099-MISC to each payee by January 31. Payers must also supply this form to the IRS. For the payee, Form 1099-MISC reports the taxable earnings received in the previous calendar year. The payer also uses the information to calculate tax deductible business expenses.
Some nonemployee income payments do not require a Form 1099-MISC. For example, payments to corporations generally do not require a 1099-MISC, except for medical and health care payments, and attorney fees. Also, land rental payments to real estate agents, and payments for hauling grain and livestock do not require Form 1099-MISC. In certain situations, purchase of materials and supplies are subject to 1099-MISC reporting. For example, when an independent contractor who is not also a dealer in supplies performs work and provides the materials, the entire payment must be recorded on Form 1099-MISC. If the payee normally deals in supplies, the payer reports only the payment for services rendered, but not the value of the materials. Farm and ranch-related expenses that do not require a 1099-MISC include feed, seed, fertilizer, chemicals, fuel, and other non-service items.
Completion of the Form
Form 1099-MISC requires reporting of nonemployee compensation including rent, royalties, commissions, fees, and other income. A completed form must include the payer and payee name, address, and tax identification number. An individual tax identification number is provided by the payee on a W-9 form. If the payee fails to supply their social security number (or other identification number), the payer is required to withhold a federal income tax payment. Generally, payments reported on Form 1099-MISC are subject to self-employment taxes (Medicare and Social Security), but are not withheld by the payer.
Other 1099 Forms Submitted
Some farmers and ranchers are involved in transactions that require the submission of other 1099 forms. For example, borrowing money for business purposes when interest is paid requires the submission of Form 1099-INT. This is used to report more than $600 in interest paid by a borrower. Farmers and ranchers (as borrowers) may also be involved with the cancellation of debt. If so, Form 1099-C is used. When this occurs the debtor is required to report the cancelled debt as taxable income. For the person who forgave the debt, the principal and interest are tax deductible. Form 1099-MISC and other 1099 forms can be ordered from the IRS on the IRS website. Any producer with questions concerning the submission of 1099 forms should consult with a competent tax advisor or attorney.
1099 Forms Received
Farmers and ranchers also receive 1099 forms. For example, farmers and ranchers will receive a Form 1099-MISC if income was earned from custom work, rental payments, crop insurance proceeds, or other nonemployee compensation. Other 1099 forms that producers may receive include:
- Form 1099-A reports proceeds from forfeiture of pledged crops to the Commodity Credit Corporation Loan or CCC2 in full payment of a loan.
- Form 1099-PATR reports taxable distributions received from cooperatives.
- Form 1099-G reports certain payments from the federal government – such as Conservation Reserve Program or CRP payments.
- Form 1099-S reports proceeds from real estate transactions.
Penalties Imposed for Failure to Issue 1099 Forms
If someone fails to send out 1099 forms in accordance with the regulations, he or she could face monetary penalties. Penalties for failure to file range from $30-$100 per 1099 for late filings or up to $250 per 1099 for intentional disregard.
For further information please see IRS Publication 225, Farmer’s Tax Guide.
Disclaimer: The information in this article is believed to be reliable and correct. However, no guarantee or warranty is provided for its accuracy or completeness. This information is provided exclusively for educational purposes and any action or inaction or decisions made as the result of reading this material is solely the responsibility of readers. The author(s) and South Dakota State University disclaim any responsibility for loss associated with the use of this information.
- For farmers and ranchers, additional examples of nonemployee compensation requiring a 1099-MISC include payments to veterinarians, attorneys, accountants, tax advisors, mechanics, custom harvesters, chemical and fertilizer applicators, and land owners. Typically, these payments are for rent (including land and machinery) and services (sometimes including parts and materials).
- Generally, you don't report loans you receive as income. However, if you pledge part or all of your production to secure a CCC loan, you can treat the loan as if it were a sale of the crop and report the loan proceeds as income in the year you receive them. You don't need approval from the IRS to adopt this method of reporting CCC loans.