1099-MISC Box 6 – What You Need to Know!
In the course of doing your business, you sometimes employ the services of individuals who are not your employees (referred to as independent contractors or freelancers).
Or it could be that you provided services for another business as an independent contractor.
In both cases, you’ll probably come across IRS form 1099-MISC which is a form commonly provided to independent contractors.
Most of the box items found on the form are pretty self-explanatory and can be easily understood such as box 1 for rents, box 2 for royalties, etc.
However, there is one box that tends to confuse people and it is box 6 -medical and health care payments.
Source: IRS Form 1099-MISC
What is form 1099-MISC box 6?
From the instruction for Forms 1099-MISC by the IRS, Form 1099-MISC box 6 is where you enter payments made to each physician or other supplier or provider of medical or health care service.
Take note that these payments have to be made in the course of doing your trade or business.
What can you report as medical and health care payment under form 1099-MISC box 6?
Payments that are to be reported under form 1099-MISC box 6 must be $600 or more.
Only payments made to health care or medical providers/suppliers (such as doctors, nurses, hospitals, or any other entities that provide health care services) can be reported.
Often included in these services are charges for injections, drugs, dentures, drug screenings, and lab services.
In cases where payment for goods and services has been made to the same health care provider, the whole payment must be reported.
There are exceptions to this rule though.
Payments made to pharmacies for prescription drugs don’t need to be reported.
Payments made for insurance premiums for fully insured health coverage also don’t have to be reported as they are not considered to be a medical or health care service.
However, payments made by medical and health care insurance companies related to health, accident, and sickness insurance programs are reportable.
Lastly, medical and health care payments made to hospitals and extended care facilities that are tax-exempt or government-owned and operated don’t have to be reported.
Should payments made for the renting or leasing of medical equipment be included in IRS Form 1099-MISC box 6?
Short answer: No. It would still be reported under Form 1099-MISC but on box 1 – Rents.
Long answer: The renting or leasing of medical equipment is not considered to be a medical or health care service.
Rather, it is treated just like a rental of any other property.
Hence, rather than being included in box 6 of IRS form 1099-MISC, it should be included in box 1 – Rents.
How about payments made for a medical testimony?
A medical testimony (or medical expert witness testimony) is given by a physician or other medical experts in a court proceeding.
It is not considered to be a medical or health care service.
Hence, it should not be included in Form 1099-MISC box 6.
How about payments made under a flexible spending arrangement?
Citing instructions to IRS form 1099-MISC (page 6): “Generally, payments made under a flexible spending arrangement (as defined in section 106(c)(2)) or a health reimbursement arrangement which is treated as employer-provided coverage under an accident or health plan for purposes of section 106 are exempt from the reporting requirements of section 6041”.
This means that payments made under a flexible spending arrangement don’t have to be reported in Form 1099-MISC box 6.
To have an idea of what a flexible spending arrangement is, let’s consult section (c)(2) of the Internal Revenue Code of 1986 which defines it as a “benefit program that provides employees with coverage under which: (a) specified incurred expenses may be reimbursed (subject to reimbursement maximums and other reasonable conditions); and (b) the maximum amount of reimbursement which is reasonably available to a participant for such coverage is less than 500 percent of the value of such coverage”.
So basically, it’s an arrangement where an employer pays for the medical and health care expenses of its employees that are qualified and covered.
Reimbursements received by an employee under such an arrangement are not considered income and thus, are not required to be reported on IRS Form 1099-MISC.
What if I made medical and health care payments to a corporation?
While corporations are normally exempted from the issuance of IRS Form 1099-MISC, this exemption does not apply when it comes to payments made for medical and/or health care services provided by corporations.
In such a case, you list the corporation as the recipient/payee, not the individual that provided the service.
Who is responsible for reporting IRS Form 1099-MISC box 6 information?
Just like any other IRS Form 1099, it is the payor’s responsibility to report information for box 6 of the IRS Form 1099.
The payor could either be an individual or a business entity.
When am I required to provide an IRS Form 1099-MISC with box 6 information?
If the following conditions are met, then as a payor, you would have to provide IRS Form 1190-MISC with box 6 information:
(1) payments were made to medical or health care providers for their services;
(2) payments were made in the course of doing trade or business; and
(3) the cumulative total of payments over the year is at least $600 (for each payee)
A copy of the form must be provided to the payee/recipient on or before January 31 of the following year the payments were made.
Failure to do so could result in late fees and penalties.
I received an IRS Form 1099 with box 6 information. What do I do?
If you received an IRS form 1099-MISC with box 6 information, as with any other IRS Form 1099, you’ll have to report it as part of your taxable income.
Individuals, sole proprietors, or pass-through entities will have to include the information from box 6 of IRS Form 1099-MISC on line 1 of part 1 of IRS Form Schedule C (Form 1040).
This is stated in the instruction for Forms 1099-MISC (see page 5).
Source: IRS Schedule C (Form 1040)
Note that businesses that employ the services of an independent contractor do not withhold any taxes for said independent contractors.
So if you receive a Form 1099, that means that you are responsible for the payment of taxes related to the information provided in the form.
Make sure to include all of the information reported in any Form 1099-MISC you received as part of your gross receipts or sales of your IRS Schedule C (Form 1040).
Not doing so could result in penalties.
For corporations, treat the information reported in IRS Form 1099-MISC box 6 as you will with any other income sources.
For S Corporations, it will be reported in IRS Form 1120-S, while for C corporations it will be reported in IRS Form 1120.
Reintroduction of 1099-NEC and how it affects reporting of medical and health care payments
Beginning with the tax year 2020, self-employed individuals, freelancers, or independent contractors will be receiving IRS Form 1099-NEC instead of IRS Form 1099-MISC concerning payment of their services.
The question now is whether to report medical and health care payments under IRS Form 1099-MISC or IRS Form 1099-NEC.
According to Instructions for Forms 1099-MISC and 1099-NEC, you will have to file IRS Form 1099-NEC for payments made for:
- Services performed by someone who is not your employee, including parts and materials;
- Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish; or
- Payments to an attorney
Note that the cumulative total payments for the year for each payee must at least be $600.
The point of contention here is item (1) which is payment made for services performed by someone who is not your employee, including parts and materials. Some medical and health care providers are self-employed or independent contractors, which makes them “nonemployees”.
It can then be argued that the services that they provide should be reported under Form 1099-NEC.
However, in the same document, there is a dedicated section for medical and health care payments (which can be found on page 6) and it is a part of the specific instructions for Form 1099-MISC.
This makes it clear that payments made to suppliers or provides of medical and/or health care are still to be reported under Form 1099-MISC, particularly box 6.
As an independent contractor, whether you receive Form 1099-MISC or 1099-NEC from your client for medical and health care services that you provided, the information provided within the form must still be included in your IRS Schedule C as part of your gross receipts.
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IRS.gov "Instructions for Forms 1099-MISC and 1099-NEC" PDF. October 6, 2021
IRS.gov "Userid: CPM Schema: i1040x Leadpct: 100% Pt. size: 10 Draft Ok to Print AH XSL/XML Fileid: ... /I1040SCHC/2020/A/XML/Cycle07/source (Init. & Date) _______ Page 1 of 19 9:52 - 13-Jan-2021 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Department of the Treasury Internal Revenue Service 2020 Instructions for Schedule C" PDF. October 6, 2021
IRS.gov "About General Instructions for Certain Information Returns" Page 1. October 6, 2021