Box 3. Other Income

Enter other income of $600 or more required to be reported on Form 1099-MISC that is not reportable in one of the other boxes on the form.

Also enter in box 3 prizes and awards that are not for services performed. Include the fair market value (FMV) of merchandise won on game shows. Also include amounts paid to a winner of a sweepstakes not involving a wager. If a wager is made, report the winnings on Form W-2G, Certain Gambling Winnings.

If, not later than 60 days after the winner becomes entitled to the prize, the winner can choose the option of a lump sum or an annuity payable over at least 10 years, the payment of winnings is considered made when actually paid. If the winner chooses an annuity, file Form 1099-MISC each year to report the annuity paid during that year.

Do not include prizes and awards paid to your employees. Report these on Form W-2. Do not include in box 3 prizes and awards for services performed by nonemployees, such as an award for the top commission salesperson. Report them in box 7.

Prizes and awards received in recognition of past accomplishments in religious, charitable, scientific, artistic, educational, literary, or civic fields are not reportable if (a) the winners are chosen without action on their part, (b) the winners are not expected to perform future services, and (c) the payer transfers the prize or award to a charitable organization or governmental unit under a designation made by the recipient. See Rev. Proc. 87-54, 1987-2 C.B. 669.

Other items required to be reported in box 3 include the following:

1. Generally, all punitive damages, any damages for nonphysical injuries or sickness, and any other taxable damages. Report punitive damages even if they relate to physical injury or physical sickness. Generally, report all compensatory damages for nonphysical injuries or sickness, such as employment discrimination or defamation. However, do not report damages (other than punitive damages):
   1. Received on account of personal physical injuries or physical sickness;
   2. That do not exceed the amount paid for medical care for emotional distress; or
   3. Received on account of nonphysical injuries (e.g., emotional distress) under a written binding agreement, court decree, or mediation award in effect on or issued by September 13, 1995.

   Damages received on account of emotional distress, including physical symptoms such as insomnia, headaches, and stomach disorders, are not considered received for a physical injury or physical sickness and are reportable unless described in b or c above. However, damages received on account of emotional distress due to physical injuries or physical sickness are not reportable.

   Also report liquidated damages received under the Age Discrimination in Employment Act of 1967.

   Taxable back pay damages may be wages and reportable on Form W-2. See Pub. 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration.
   
   

2. Payments to nonemployees specified in, and payments similar to those specified in, Rev. Rul. 65-18, 1965-1 C.B. 32, about payments to patients and members in Department of Veterans Affairs (VA) hospitals and domiciliaries under the VA therapeutic or rehabilitative programs.
3. Payments as explained on page MISC-2 under Deceased employee's wages paid to estate or beneficiary.
4. Payments as explained on page MISC-3 under Indian gaming profits, payments to tribal members.
5. Termination payments to former self-employed insurance salespeople. These payments are not subject to self-employment tax and are reportable in box 3 (rather than box 7) if all the following apply:
   1. The payments are received from an insurance company because of services performed as an insurance salesperson for the company.
   2. The payments are received after termination of the salesperson's agreement to perform services for the company.
   3. The salesperson did not perform any services for the company after termination and before the end of the year.
   4. The salesperson enters into a covenant not to compete against the company for at least 1 year after the date of termination.
   5. The amount of the payments depend primarily on policies sold by the salesperson or credited to the salesperson's account during the last year of the service agreement or on the extent to which those policies remain in force for some period after termination, or both.
   6. The amount of the payments do not depend at all on length of service or overall earnings from the company (regardless of whether eligibility for payment depends on length of service).

If the termination payments do not meet these requirements, report them in box 7.

Illustrated Form 1099-MISC for Jeremy Michaels

Box 4. Federal Income Tax Withheld

Enter backup withholding. For example, persons who have not furnished their TIN to you are subject to withholding at a 30% rate on payments required to be reported in boxes 1, 2 (net of severance taxes), 3, 5 (to the extent paid in cash), 6, 7 (except fish purchases for cash), 8, 10, and 14. For more information on backup withholding, see the 2003 General Instructions for Forms 1099, 1098, 5498, and W-2G.

Also enter any income tax withheld from payments to members of Indian tribes from the net revenues of class II or class III gaming activities conducted or licensed by the tribes.

Box 5. Fishing Boat Proceeds

Enter the share of all proceeds from the sale of a catch or the FMV of a distribution in kind to each crew member of fishing boats with normally fewer than 10 crew members. A fishing boat has normally fewer than 10 crew members if the average size of the operating crew was fewer than 10 on trips during the preceding 4 calendar quarters.

In addition, report cash payments of up to $100 per trip that are contingent on a minimum catch and are paid solely for additional duties (such as mate, engineer, or cook) for which additional cash payments are traditional in the industry. However, do not report on Form 1099-MISC any wages reportable on Form W-2.

Box 6. Medical and Health Care Payments

Enter payments of $600 or more made in the course of your trade or business to each physician or other supplier or provider of medical or health care services. Include payments made by medical and health care insurers under health, accident, and sickness insurance programs. If payment is made to a corporation, list the corporation as the recipient rather than the individual providing the services. Payments to persons providing heath care services often include charges for injections, drugs, dentures, and similar items. In these cases the entire payment is subject to information reporting. You are not required to report payments to pharmacies for prescription drugs.

The exemption from issuing Form 1099-MISC to a corporation does not apply to payments for medical or health care services provided by corporations, including professional corporations. However, you are not required to report payments made to a tax-exempt hospital or extended care facility or to a hospital or extended care facility owned and operated by the United States (or its possessions), a state, the District of Columbia, or any of their political subdivisions, agencies, or instrumentalities.

Box 7. Nonemployee Compensation

Enter nonemployee compensation of $600 or more. Include fees, commissions, prizes and awards for services performed as a nonemployee, other forms of compensation for services performed for your trade or business by an individual who is not your employee, and fish purchases for cash. Include oil and gas payments for a working interest, whether or not services are performed. Also include expenses incurred for the use of an entertainment facility that you treat as compensation to a nonemployee. Federal executive agencies that make payments to vendors for services, including payments to corporations, must report the payments in this box.

Exceptions.   Do not report in box 7, nor elsewhere on Form 1099-MISC, the cost of current life insurance protection, (report on Form W-2 or Form 1099-R); an employee's wages, travel or auto allowance, or bonuses (report on Form W-2); or the cost of group-term life insurance paid on behalf of a former employee (report on Form W-2).

Self-employment tax.   Generally, amounts reportable in box 7 are subject to self-employment tax. However, corporations are not subject to self-employment tax. If payments to individuals are not subject to this tax and are not reportable elsewhere on Form 1099-MISC, report the payments in box 3. However, report section 530 (of the Revenue Act of 1978) worker payments in box 7.

When to report.   If the following four conditions are met, you must generally report a payment as nonemployee compensation: (1) you made the payment to someone who is not your employee; (2) you made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations); (3) you made the payment to an individual, partnership, estate, or, in some cases, a corporation; and (4) you made payments to the payee of at least $600 during the year.

Examples.   The following are some examples of payments to be reported in box 7:

• Professional service fees, such as fees to attorneys (including corporations), accountants, architects, contractors, subcontractors, etc.
• Fees paid by one professional to another, such as fee-splitting or referral fees.
• Payments by attorneys to witnesses or experts in legal adjudication.
• Payment for services, including payment for parts or materials used to perform the services if supplying the parts or materials was incidental to providing the service. For example, report the total insurance company payments to an auto repair shop under a repair contract showing an amount for labor and another amount for parts, if furnishing parts was incidental to repairing the auto.
• Commissions paid to nonemployee salespersons that are subject to repayment but not repaid during the calendar year.
• 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. To help you determine whether someone is an independent contractor or an employee, see Pub. 15-A.
• Payments to nonemployee entertainers for services. Use Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, for payments to nonresident aliens.
• Exchanges of services between individuals in the course of their trades or businesses. For example, an attorney represents a painter for nonpayment of business debts in exchange for the painting of the attorney's law offices. The amount reportable by each on Form 1099-MISC is the FMV of his or her own services performed. However, if the attorney represents the painter in a divorce proceeding, this is an activity that is unrelated to the painter's trade or business. The attorney must report on Form 1099-MISC the value of his or her services. But the painter need not report on Form 1099-MISC the value of painting the law offices because the work is in exchange for legal services that are separate from the painter's business.
• Taxable fringe benefits for nonemployees. For information on the valuation of fringe benefits, see Pub. 15-B, Employer's Tax Guide to Fringe Benefits.
• Gross oil and gas payments for a working interest.
• Payments to an insurance salesperson who is not your common law or statutory employee. See Pub. 15-A for the definition of employee. However, for termination payments to former insurance salespeople, see 5. Termination payments on page MISC-4.
• Directors' fees as explained under Directors' fees on page MISC-3.
• Commissions paid to licensed lottery ticket sales agents as explained under Commissions paid to lottery ticket sales agents on page MISC-3.
• Payments to section 530 (of the Revenue Act of 1978) workers. See the TIP on page MISC-2.
• Fish purchases for cash. See Fish purchases on page MISC-2.
• Golden parachute payments. A typical golden parachute payment is one made by a corporation to an employee or independent contractor who performs services for a corporation and is an officer, shareholder, or highly paid individual when a change in the ownership or control of the corporation occurs or when a change in the ownership of a substantial part of the corporate assets occurs. See the Proposed Regulations under section 280G for more information. For an independent contractor (nonemployee), enter in box 7 the total compensation, including any golden parachute payments. If you pay an excess golden parachute payment (under section 280G) to a nonemployee, enter the excess in box 13.

For employee reporting of these payments, see Pub. 15-A.

Illustrated example.   The completed Form 1099-MISC above illustrates the following example. XYZ Builders is a contractor that subcontracts drywall work to Zachary Austin, a sole proprietor who does business as Rock Hill Drywall. During the year, XYZ Builders pays Mr. Austin $5,500. XYZ Builders must file Form 1099-MISC because they paid Mr. Austin $600 or more in the course of their trade or business, and Mr. Austin is not a corporation. Form 1099-MISC is completed as shown on page MISC-5.

Box 8. Substitute Payments in Lieu of Dividends or Interest

Enter aggregate payments of at least $10 received by a broker for a customer in lieu of dividends or tax-exempt interest as a result of the transfer of a customer's securities for use in a short sale. File Form 1099-MISC with the IRS and furnish a copy to the customer for whom you received the payment. However, for substitute payments in lieu of dividends, do not file Form 1099-MISC or furnish it to your customer if your customer is an individual unless you have reason to know on the record date of the dividend payment that such substitute dividend payment is in lieu of (a) an exempt-interest dividend, (b) a capital gain dividend, (c) a return of capital, or (d) a dividend subject to a foreign tax credit. If you are not required to make a report on Form 1099-MISC for substitute dividends of at least $10, you must report the substitute dividends on Form 1099-DIV, Dividends and Distributions. File Form 1099-MISC for and furnish a copy to an individual for whom you received a payment in lieu of tax-exempt interest.

Substitute payment means a payment in lieu of (a) tax-exempt interest to the extent that interest (including OID) has accrued while the short sale was open and (b) a dividend if the ex-dividend date is after the transfer of stock for use in a short sale and before the closing of the short sale.

For more information about reporting substitute payments, see Regulations section 1.6045-2.

Box 9. Payer Made Direct Sales of $5,000 or More

Enter an X in the checkbox for sales by you of $5,000 or more of consumer products to a person on a buy-sell, deposit-commission, or other commission basis for resale (by the buyer or any other person) anywhere other than in a permanent retail establishment. Do not enter a dollar amount in this box.

If you are reporting an amount in box 7, you may also check box 9 on the same Form 1099-MISC.

The report you must give to the recipient for these direct sales need not be made on the official form. It may be in the form of a letter showing this information along with commissions, prizes, awards, etc.

Box 10. Crop Insurance Proceeds

Enter crop insurance proceeds of $600 or more paid to farmers by insurance companies unless the farmer has informed the insurance company that expenses have been capitalized under section 278, 263A, or 447.

Boxes 11 and 12. Reserved

Make no entries in these boxes.

Box 13. Excess Golden Parachute Payments

Enter any excess golden parachute payments. See Golden parachute payments on page MISC-5.

Box 14. Gross Proceeds Paid to an Attorney

Report gross proceeds paid to an attorney in connection with legal services (regardless of whether the services are performed for the payer). See Payments to attorneys on page MISC-1.

Box 15. Blank Box

You may use box 15 to provide any other information to the recipient.

Boxes 16-18. State Information

These boxes, and Copies 1 and 2, are provided for your convenience only and need not be completed for the IRS. Use the state information boxes to report payments for up to two states. Keep the information for each state separated by the dash line. If you withheld state income tax on this payment, you may enter it in box 16. In box 17, enter the abbreviated name of the state and the payer's state identification number. The state number is the payer's identification number assigned by the individual state. In box 18, you may enter the amount of the state payment. Use Copy 1 to provide information to the state tax department. Give Copy 2 to the recipient for use in filing the recipient's state income tax return.

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