Tax Form 1099-MISC Guide – IRS 1099 MISC Box 3 and Box 4

Before proceeding to Box-4, the IRS 1099 Instructions towards Box-3 for other income states that as follows – 

The employers should not include prizes and awards paid to their employees. Whereas they need to report form w2. The employer should not include prizes and awards in BOX-3 for services by non-employees, who are not in payrolls such as an award given for the top commission salesperson and they need to report this in BOX-7

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IRS also indicates-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.

Now proceeding to Box-4 – Federal Income Tax Withheld- In some of the cases, the IRS may require automatic backup withholding for payees where the name and TIN are unavailable or inaccurate. IRS reminds as for example, persons who have not furnished their TIN to the concerned are subject to withholding on payments and required to be reported in boxes 1, 2 which is net of severance taxes and 3, 5 would explain as to the extent paid in cash and 6, 7 with excepting fish purchases for cash and also 8, 10, and 14. All these boxes need to be checked up appropriately as per the given conditions. For further information on backup withholding, including the rate, one can see or refer part N in the 2015 General Instructions for Certain Information Returns.

The gross amount of income should be reported in the appropriate box, and the total amount withheld should be reported in Box 4 of this form. The current backup withholding rate is 28%. A correctly completed report would look like this: Box 3: shows $10,000, Box 4: shows $2,800, where the amount of income was $10,000, but the payee receives $7,200 after backup withholding. Any payment where backup withholding was performed requires reporting even if the minimum threshold has not been met.

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