According to federal law, all citizens and residents in the US are subject to paying taxes. They pay taxes to the Internal Revenue Service (IRS) for any income derived during a financial year.
The most commonly reported income is employee wages, but did you know you should also report other types of income called miscellaneous income? The IRS even has a special form Form 1099-MISC, to help you file these types of income.
Here is what classifies as Miscellaneous income.
What Is Miscellaneous Income?
It’s income that originates from streams thought of as unconventional sources of revenue. Most people will often associate it with non-employee remuneration. While it may be true, there are 13 types of income that you can report on Form 1099-MISC.
To learn more about Form 1099-MISC, visit https://blog.boomtax.com/essential-guide-form-1099-misc/ to get all the necessary information.
What Are the Different Types of Miscellaneous Income?
Form 1099-MISC has several income types, denoted in boxes on the right side of the form. They include;
Rents
You must report this income in box one if you run a business renting out houses, machines, or land. For example, income from leasing real estate. The income from the rent must also be over $600 during the past year.
Royalties
Royalties include sums paid for the legal use of patents, trademarks, and copyrights. For example, income from letting a company use your song in their marketing campaign. To report income from royalties, it must be above $10.
Other Income
This category covers income from rewards and compensations. For example, payments from prizes, game show cash wins, sweepstakes, and compensatory damages. To report this kind of income, it must be above $600 for the past year.
People confuse this category with income from gambling and betting, which has a different file, Form W-2G.
Fishing Boat Proceeds
It includes proceeds from your activities as a fisherman in any water body where you fish. For example, income that you get when you sell fish in the market. You can fill in proceeds from commercial fishing in box 5 of Form 1099-MISC.
Medical and Health Care Payments
If you receive payment due to providing health care services, you must declare it as a miscellaneous income in box 6. For example, pay for supplying personal protective equipment during a pandemic.
Payment of Consumer Products to Buyers for Resale
It consists of payments over $5000 that are an addition to the taxable income amount. For example, payment of shoes in wholesale intended for athletes. Indicate with an x in box seven if the amount from this income is more than $5000 or leave it blank if the amount is less.
Crop Insurance Proceeds
It refers to income above $600 paid out by your crop insurance for farming-related activities. For example, payment for losses incurred due to natural disasters.
Gross Proceeds Paid to an Attorney
If you’re a lawyer who receives payment for services provided, box 10 is where you indicate the gross amount paid. For example, payment for a settlement suit.
Excess Golden Parachute Payments
It refers to payments that high-ranking company officials receive during a change in management. For example, send-off packages pay for CEOs. To qualify as a golden parachute payment, it has to be three times the yearly salary.
Do You Have to Declare Miscellaneous Income?
Reporting miscellaneous income is a federal requirement that you must fulfill to the IRS. The basic rule of paying a miscellaneous income is that it must be more than $600 per year for all categories apart from royalties which require a minimum of $10.
Failing to report a miscellaneous income or not being honest while filing attracts a penalty as it understates your tax liability.
0