Tax topics: IRS 1099 forms for agriculture producers
January 23, 2014
Farmers and ranchers regularly pay for services performed by individuals who are not their fulltime employees. Typical compensation includes wages or other payments to self-employed workers and contractors and rent paid to landowners.
When these payments occur, the farmer or rancher is responsible for providing this income information to workers and the IRS on statements called 1099 forms, explained Kim Dillivan, SDSU Extension Crops Business Management Field Specialist.
"Reporting this information to the IRS helps insure that the receiver pays appropriate taxes on the income. These forms are sent early in the calendar year so recipients have adequate time for tax preparation," Dillivan said.
He further explained that the 1099 is a series of IRS documents used to report various types of income payments made to others. The IRS refers to these documents as information returns. Failure to send complete and accurate 1099 forms in a timely fashion may result in monetary penalties.
Dillivan provides readers with information concerning 1099 forms that farmers and ranchers frequently send to payees. He includes a short list of 1099 forms that producers occasionally receive.
Self-Employed and Contractor Income
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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 Jan. 31. Payers must also supply this form to the IRS by Feb. 28. 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.
The 1099-MISC applies only to payments made for business or trade purposes and is similar to the W-2 form that documents employee wages and salaries. For farmers and ranchers, 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).
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 form 1099-MISC
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.
To Order 1099 forms: Form 1099-MISC and other 1099 forms can be ordered from the IRS at http://www.irs.gov/Businesses/Online-Ordering-for-Information-Returns-and-Employer-Returns.
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 CCC 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 CRP payments.
Form 1099-S reports proceeds from real estate transactions.
To learn more and for further information please see IRS Publication 225, Farmer's Tax Guide at http://www.irs.gov/pub/irs-pdf/p225.pdf.
You can also contact Dillivan at firstname.lastname@example.org or call him at the SDSU Extension Regional Center in Aberdeen at 605-626-2870.