Do Lawyers Get a 1099-MISC or NEC?

Businesses frequently engage independent contractors and other service providers, necessitating accurate income reporting to the Internal Revenue Service (IRS) via forms like 1099-NEC and 1099-MISC. These forms inform the IRS about non-employee income, ensuring tax compliance for both payer and recipient. Understanding which form applies to various payment scenarios is important for businesses and individuals, particularly when dealing with legal professionals.

Understanding Form 1099-NEC and Form 1099-MISC

The IRS uses several types of 1099 forms to track different kinds of income that are not wages or salaries. Among the most common are Form 1099-NEC and Form 1099-MISC, each designed for distinct reporting purposes. The distinction between these forms became clearer with Form 1099-NEC reintroduced for the 2020 tax year.

Form 1099-NEC, or Nonemployee Compensation, is used to report payments of $600 or more made in the course of a trade or business to individuals who are not employees, for services performed. This form is specifically for payments to independent contractors, freelancers, and consultants, reflecting their compensation for work provided. Before its reintroduction, this type of income was reported on Form 1099-MISC.

Conversely, Form 1099-MISC, or Miscellaneous Information, reports other income types of $600 or more. This includes payments such as rents, royalties, prizes and awards, and other income payments that do not fall under nonemployee compensation. The primary difference between the two forms centers on the nature of the payment: 1099-NEC is for services rendered by non-employees, while 1099-MISC covers other types of miscellaneous income.

Reporting Payments to Lawyers

Reporting payments to legal professionals requires using Form 1099-NEC or Form 1099-MISC, depending on the payment’s nature. This can be confusing due to the varied services lawyers provide.

Payments made to an attorney or law firm for legal services, such as advice, drafting documents, or representation in court, are considered nonemployee compensation. These payments, when totaling $600 or more in a calendar year, should be reported on Form 1099-NEC, specifically in Box 1. This applies when a business pays its own attorney for services rendered directly to the business.

A different reporting requirement applies to payments made to an attorney that represent gross proceeds from a settlement or award. When a business pays $600 or more to an attorney for gross proceeds from a settlement or award (e.g., a settlement check the attorney will disburse to a client), this amount is reported on Form 1099-MISC. These “gross proceeds paid to an attorney” are reported in Box 10 of Form 1099-MISC, regardless of whether the attorney retains a portion as a fee. This distinction is important; it is the total amount paid to the attorney, not just the attorney’s fee, that is reported in this box.

A common misconception concerns the corporate exemption for 1099 reporting. Payments to corporations are exempt from 1099 reporting requirements. However, this exemption does not apply to payments for legal services or gross proceeds paid to attorneys. Therefore, payments of $600 or more to law firms, even those organized as corporations, partnerships, or LLCs, still require a 1099 form. This rule ensures that payments to legal service providers are consistently reported to the IRS.

Practical Considerations for 1099 Reporting

Proper 1099 reporting requires specific administrative steps and deadlines. Businesses paying lawyers must systematically gather information and submit forms accurately.

An important step in preparing 1099 forms is obtaining a completed Form W-9, Request for Taxpayer Identification Number and Certification, from the attorney or law firm. This form provides the payer with the recipient’s name, address, and Taxpayer Identification Number (TIN) or Employer Identification Number (EIN), all needed for accurate 1099 preparation. Requesting the W-9 before payments are made helps prevent delays and ensures the correct entity and tax identification are used.

The $600 threshold for reporting applies to both types of payments to attorneys, whether for legal services on Form 1099-NEC or gross proceeds on Form 1099-MISC. This means any cumulative payments of $600 or more to a single attorney or law firm within a calendar year trigger the reporting requirement. Businesses are responsible for tracking these cumulative amounts to ensure proper reporting.

Filing deadlines for these forms vary depending on the type of 1099. Form 1099-NEC must be furnished to the recipient and filed with the IRS by January 31st of the year following the payment. For Form 1099-MISC, the deadline for furnishing the recipient copy is also January 31st, but the deadline for filing with the IRS is later, often February 28th for paper filing or March 31st for electronic filing for Box 10 amounts. The responsibility for issuing the correct 1099 form rests with the business or individual making the payment.