Form 1099 Information Returns
Jerry S. Pierce, Jr., KFBM Program Coordinator Department of Agricultural Economics, University of Kentucky
Form 1099 is used to report various forms of income other than wages, salaries, and tips to the Internal Revenue Service (IRS) and to the recipient of the payment. Agricultural producers may both receive Form 1099 information returns and be required to issue them. The Form notifies the IRS and the recipient of the payment. The IRS will then look for the amounts from the Form 1099 to show up on the recipient’s Federal tax return. This article covers many 1099s that producers may encounter.
Form 1099 Informational Returns
If you paid an individual a total of $600 or more for rent, services, or interest as part of your farming business you may be required to report the payments with Form 1099. Different payment levels apply in special situations. Generally, you are NOT required to file Form 1099 when payments are made to a corporation, government agency, or tax-exempt organization. You are NOT required to file if payment was made for material and supplies only. If you do issue 1099s in the course of your business, you file Forms 1099 Copy A with the IRS along with Form 1096, Annual Summary and Transmittal of Information Returns.
You may also receive Form 1099 if you have provided services to others for a total of $600 or more, received government program payments, or received other types of income. Sometimes one individual may receive a Form 1099 for the total amount even though the payments were made to multiple individuals. See the discussion of Nominee Reporting later in this article.
Common Forms 1099 Used in Agriculture
Barter. Reports exchanges of property or service under formal barter exchange contracts. A barter exchange is a person or organization with members or clients that contract with each other, or with the barter exchange, to jointly trade products or services on a barter basis. DO NOT report exchanges between farmers or ranchers on Form 1099-B unless it involves a barter exchange contract. Use Form 1099-MISC below instead.
Broker. Reports gain or loss from commodity futures and options trades. These gains and losses are reported as either hedging or speculative transactions, based on your intent and the way transactions are recorded.
Hedging is intended to reduce price risk. It requires taking a position in the market that is the opposite of what you will do with the physical commodity. The hedging transaction must be identified on the day it occurs and the risk being hedged must be identified within 35 days.
Speculation is intended to profit from trading in the commodity market. Commodity futures and trades that do not include purchase or ownership of the physical commodity are treated as speculation.
Report gain or loss from hedging transactions reported on Form 1099-B on Schedule F (Form 1040), Other Income, even if the amount is negative. Report the aggregate profit or loss from speculative transactions on Form 6781.
Cancellation of debt. Reports cancellation or forgiveness of $600 or more in debt. Report cancellation of debt incurred in farming on Schedule F, line 10. Report non-business debt on Form 1040, line 21. However, Qualified Farm Indebtedness may be excluded from income if specific requirements are met. IRS Publication 4681, Cancelled Debts, Foreclosures, Repossessions, and Abandonments contains detailed information on this subject.
Dividends and distributions. Reports $10 or more dividends and distributions from investments. Report dividends on Form 1040. Note that Patronage Dividends are reported on Form 1099- PATR (see below).
Form 1099-G, including from CCC-1099-G
Certain government payments. Reports payments for state and federal government programs and market gain on CCC loans. Report Agricultural Payments from box 7 and Market Gain from box 9 on Schedule F, lines 4a and 4b. Report Disaster Payments on lines 6a and 6b. If a producer receives a Form 1099-G for the total amount of proceeds that were distributed to more than one individual see the discussion on Nominee Reporting below.
CRP Annual Rental Payments. CRP payments are considered ordinary income by the IRS and are reported along with other government payments. However, individuals receiving Social Security retirement or disability benefits can exclude CRP payments from farm income. So can some non-farmers within the Sixth and Eighth Circuit.
Market Gain and CCC. Market Gain is reported differently when a farmer participates in the Commodity Credit Corporation (CCC) loan program and elects to treat the loan as income. Account for market gain listed on the Form 1099-G by making an adjustment to basis in the commodity equal to the amount of loan proceeds previously reported as income minus the amount of any market gain. Then report market gain on line 4a of Schedule F, (Form 1040), but not as a taxable amount on line 4b. Report market gain in the same way even if CCC certificates were used to facilitate repayment of the loan and no Form CCC-1099-G was received for the transaction.
Interest. Reports $10 or more interest payments on business loans from individuals. Enter the interest you paid in box 1, Form 1099-INT. Enter interest reported to you on Form 1040.
Miscellaneous. Reports payments for rents, crop insurance proceeds, and other things. Common farm payments that require Form 1099-MISC include:
Rents. Including land rent, building rent, and machinery lease you paid. Report payments you made in box 1. If a rental agreement for machinery includes use of both the machine and an operator, prorate the amount paid between rent for the machine (box 1) and non-employee compensation for the operator (see 1099-NEC below). Report payments you received based on the rental agreement. Generally,
- Cash rent to a landlord is reported on Schedule E, (Form 1040).
- Rent based on a crop or livestock share-rent arrangement to a landlord who does not materially participate in the farming operation is reported on Form 4835: Farm Rental Income and Expenses.
- Rent based on a crop or livestock share-rent arrangement to a landowner (or sub-lessor) who is materially participating in the farm is reported on Schedule F, (Form 1040), Other Income.
Royalties. Payments for royalties from publications. Report payments you made in box 2. DO NOT use for surface royalties, oil or gas payments, or timber royalties under a pay-as-cut contract. Report income from royalties on Form 1040.
Other. Payments that are not for services performed or reported elsewhere are included in box 3. This includes prizes for games and recognition, punitive damages, and other items not normally found in farm businesses. Report payment to an H-2A visa agricultural worker who did not give you a valid TIN. Report payments you made in box 3.
Report sales of timber on Form 1099-S, NOT as Other on Form 1099-MISC. Report wages, bonuses, and incentives paid to employees on Form W-2, NOT Form 1099-MISC.
Report payments you received as a result of farming activities, like corn contest winnings, on Schedule F, (Form 1040) Other Income.
Federal Income Tax Withheld. You must withhold federal income tax under the backup withholding rules on H-2A workers and other employees who did not give you a valid TIN. Report payments you made in box 4.
Crop Insurance. Reports crop insurance payments paid to you by insurance companies. Report on Form Schedule F, (Form 1040).
Gross Proceeds Paid to an Attorney. Reports gross payments of $600 or more paid to someone else’s attorney concerning damages or settlement proceeds involving the farm or ranch, even if the attorney is incorporated. For payments to your attorney see 1099-NEC below.
Nonemployee Compensation. Reports payment of $600 or more for contract services involving the agricultural business that are not provided by an employee.
Report most nonemployee compensation received by you, including contract payment for livestock production, on Schedule F, (Form 1040), Other Income. Report custom work income as Custom Hire (Machine Work).
Report payments by you for services provided to the farm or ranch business by others who are not your employees on Form 1099-NEC, box 1. See IRS Pub 15-A and the IRS website for help in determining whether someone is an independent contractor or an employee. It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors.
Generally, you must withhold and pay income taxes, social security taxes and Medicare taxes as well as pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.
Examples of those who may qualify as nonemployees include:
- independent contractor
- crop scouts and consultants
- custom hire (machine work)
- hay bailing on shares
- custom machine operators
Include in non-employee compensation amounts for parts and materials purchased that are part of the service provided, including hay and feed, repair parts and materials, and road materials. DO NOT include payments primarily for parts, materials, utilities, freight, or storage. Payments to log haulers are considered freight, not services. Report fees paid to your attorney for services to the business, even if the attorney is incorporated.
Include exchanges of goods and services between individuals in the course of operating a farm business (barter). Report the fair market value of goods or services you gave in exchange to someone else on Form 1099-NEC, box 1. Report the value of goods exchanged for labor of an employee in amounts on Form W-2.
Generally, report the value of goods and services traded in a barter exchange as offsetting income and expense on Schedule F, (Form 1040). For example, report the value of baling hay for your neighbor as Other Income and the hay you received as Feed Purchased. If no cash traded hands, the value for baling equals the value of the hay.
Note: If an exchange of goods and/or services includes an asset used in the trade or business of farming, rather than an inventory item, the acquisition or disposition of that asset is not reported on Form 1040 Schedule F, (Form 1040).
Mary Smith gives John Clay three 5 year old raised beef cows in exchange for John spraying her hay field. They determine that the value exchanged is $2,100. Mary will issue a Form 1099-NEC to John with $2,100 reporting Nonemployee compensation.
On her Federal income tax return, Mary will include $2,100 in her custom hire expenses on Form 1040 Schedule F (Line 15). She will also report the sale of the three raised cows in Part I of Form 4797 (Sales of Business Property).
John will report $2,100 of custom hire income on Line 9 of his Form 1040 Schedule F. He will also record the purchase of three beef cows for a total of $2,100 in his depreciation records, and on Form 4562 (Depreciation and Amortization) to claim the allowable depreciation and any other cost recovery he is eligible for and elects to use in the current tax year.
Distributions from Cooperatives. Reports $10 or more in patronage dividends, non-patronage dividends, per-unit retain allocations, and redeemed nonqualified notices from a Co-op. Report total amounts on Schedule F, (Form 1040), line 3a Cooperative distributions. Subtract the amount of patronage distributions that come from buying items for family use, capital assets, or depreciable assets from the Co-op and list the balance on line 3b.
Patronage Dividends. The patronage dividend is usually a combination of cash (check from the Coop) and a qualified written notice of allocation or a per-unit retain. A qualified written notice of allocation represents the portion of patronage dividend retained for a certain period by the Co-op. It is included in taxable income the year notice is received.
Note that return of the qualified written notice of allocation or per-unit retain is not included on Form 1099-PATR. This amount should have been reported as taxable income on Schedule F, (Form 1040), Patronage dividends in the year it was received.
Per-Unit Retain Allocations. This is the gross amount of product sold for the calendar year through the Co-op, such as grain or milk. DO NOT double report this income as Sales of livestock, produce, grain, and other products you raised.
If deductions for hauling, marketing, drying, and storage have NOT been subtracted out of gross amount reported, be sure to report as expenses on Schedule F, (Form 1040).
Redeemed nonqualified notices. “Nonqualified” written notice of allocation and per-unit retains are not included in income in the year of notification. They are reported on Form 1099-PATR as taxable income for the year in which you redeem them.
Section 199A(g) qual, items. This is your share of the Co-op’s Domestic Production Activities Deduction. The deduction is added to the farm’s QBI deduction and reported on Form 1040.
Proceeds from Real Estate Transactions. Reports the sale or exchange of real estate, including land, buildings, and timber royalties.
Report timber payments made under a pay-as-cut contract. Enter “timber” in box 3 as the legal description. These payments often qualify for capital gains treatment. Lump-sum purchases of timber are exempt from reporting on Form 1099-S.
At times, a Form 1099 is issued to one person for amounts received that actually belong to one or more other persons. The person receiving the original Form 1099 is considered a nominee recipient. The nominee must report the entire amount shown on Form 1099 on his or her tax return for matching purposes. The nominee must then issue the same type of Form 1099 to each of the other persons showing the amount they are responsible for reporting. Each person will report that amount on his or her tax return for matching purposes. The nominee may reduce his or her taxable income by the amount of nominee distribution reported to others (see examples below).
It is the nominee’s responsibility to issue and file Forms 1099 and Form 1096, not the original payer. The nominee will be the Payer on the Form 1099 and other person will be the Recipient. A spouse does not have to file a nominee form to show amounts reportable by the other spouse.
Agricultural Program Payments
Reporting of nominee distributions are often seen when government payments reported to one family member are actually constructively received by multiple family members (such as payments received in a parent’s name, but actually shared by the parent and one or more children), and in cases when payments are reported in the name of an officer of an association or organization when the payments are actually shared by the members of the association or organization.
Report full amount on Schedule F, (Form 1040), line 4a, and net amount on Schedule F, (Form 1040), line 4b. Issue Form 1099-G for the amount belonging to other producers.
Ima Jones receives Form 1099-G for $24,000. She paid $8,000 to Rich Smith. Ima reports $24,000 on line 4a and $16,000 on line 4b ($24,000 - $8,000). She issues a Form 1099-G to Rich for $8,000. She also files Form 1099-G Copy A and Form 1096 with the IRS.
Dustin Rhodes is president of the Alkali Flats Irrigation Association (AFIA). In their application for federal irrigation subsidies, AFIA listed Dustin, rather than the Association, as the subsidy recipient. The irrigation subsidy was actually received by AFIA, and distributed to AFIA’s members. Nominee 1099s will have to be filed by Dustin to accurately show the amount received by each AFIA member. The net effect is that each AFIA member will show his/her share of the subsidy as farm income.
Contract Livestock Growing
Report the entire amount of contract income on Schedule F, (Form 1040). Report the amount of the nominee distribution on Schedule F, (Form 1040), Custom hire. Issue Form 1099-NEC with the amount of the nominee distribution in box 1.
Bob White grew chickens with Silver Poultry. His son, Eric, now operates the farm, but the contract remains in Bob’s name. Silver Poultry issues a 1099-NEC to Bob for the year’s broiler pay. Bob reports the entire amount on Schedule F, (Form 1040), Custom hire income, and again as Custom hire expense. His net farm profit from Silver Poultry is zero. Bob issues a Form 1099-NEC to Eric with the same amount in box 1. Eric includes the broiler pay on his Schedule F, (Form 1040).
More information on these and other Form 1099s can be found in A Guide to Information Returns on the IRS website at www.irs.gov. Enter “A Guide to Information Returns” in the search box in the top right-hand portion of the page. Detailed information on specific Form 1099s can also be found by entering the form name (ex. “Form 1099-MISC”) in the search box. The search results will include the specified form, and instructions for completing the form.
Filing Information Returns Electronically (FIRE)
Any entity that needs to file information returns can file electronically via the FIRE System through the IRS. Any corporation, partnership, employer, estate or trust that files 250 or more information returns for any calendar year must file electronically. Filers who have less than 250 information returns can still file electronically and may be required to do so in the future.
This fact sheet was written as part of Rural Tax Education a national effort including Cooperative Extension programs at participating land-grant universities to provide income tax education materials to farmers, ranchers, and other agricultural producers. For a list of universities involved, other fact sheets and additional information related to agricultural income tax please see RuralTax.org.
This information is intended for educational purposes only. You are encouraged to seek the advice of your tax or legal advisor, or other authoritative sources, regarding the application of these general tax principles to your individual circumstances. Pursuant to Treasury Department (IRS) Circular 230 Regulations, any federal tax advice contained here is not intended or written to be used, and may not be used, for the purpose of avoiding tax-related penalties or promoting, marketing or recommending to another party any tax-related matters addressed herein.
USDA is an equal opportunity provider, employer, and lender. Rural Tax Education is part of the National Farm Income Tax Extension Committee. The land-grant universities involved in Rural Tax Education are affirmative action/equal opportunity institutions.
This material is based upon work supported by the U.S. Department of Agriculture, under agreement number FSA21CPT0012032. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the U.S. Department of Agriculture. In addition, any reference to specific brands or types of products or services does not constitute or imply an endorsement by the U.S. Department of Agriculture for those products or services.
Published October 2022