Episode 27: Ask the Experts, Volume 2

It's another Ask the Experts feature. The questions addressed this time:
--What if you have to re-issue a check to the payee because they lost it, and it's the next year? Do you need to correct anything or issue new 1099s?

--Is a collection agency associated with a medical facility providing a "medical service" reportable on 1099-MISC (box 6)

--Is a non-cash amount, such as a book, given to a contractor considered contract labor?

--How do you handle a legal settlement where interest payments are involved?

As always, we are sponsored by IOFM, the Institute of Finance and Management. www.iofm.com 

Transcript

SPEAKER_00 0:00

Welcome to another episode of Information Return Intelligence. I'm Jason Dinison. As always, Information Return Intelligence is sponsored by IOFM, the Institute of Finance and Management. This week it's another go-around with Ask the Experts. This is Ask the Experts Volume Two. So let's jump right in. These are questions submitted either through IOFM's Ask the Experts feature, which you get access to as a member of IOFM, or submitted to me through other means, such as when I'm teaching webinars and such. Question: If Compes a check to a payee, then later company A has to reissue the same check to the payee because the pae lost the check. Does the company need to do an amended 1099 NEC if it crosses years? So this is a question asking about an organization issuing a check in say November of 2025, and the recipient never caches it for some reason. And now they've come along to you in 2026 and said, oh hey, lost that check. So you reissue it now. It's a different year. The question is, do you have to go back to 2025 and amend, correct the 1099 to zero it out, and then issue a new 1099 this year? The answer, the short answer is no, you don't. The longer answer, regulation 1.6041-1, says payment is considered made and thus reportable when, and quoting the regulation here, it is credited or set apart to a person without any substantial limitation or restriction as to the time or manner of payment or condition upon which the payment is to be made and is made available to him so that it may be drawn at any time, and its receipt brought within his own control and disposition. That's a lot of words. What it's saying is if you wrote the check in 2025 and you sent it off, at that point your payee has control and disposition over the funds. You've set the funds aside and payment is being made without any restrictions. So it's reportable in 2025. If something happens where they lose the check or whatever happens, they don't get it deposited, and now they can't find it, and you have to reissue it, it's still a 2025 transaction. Next question: We have an invoice from a C Corp collection agency for past medical expenses. Would this vendor still be reportable on a 1099 miscellaneous box six as a medical or health care service? Now, at first glance, it seems like the answer would be no, because this is a collection agency, a billing function. Doesn't seem to be a medical service. However, if you dig into the regulations, if you care for the exact citation, it's 1.6041-3P1. Says medical services include payments to businesses engaged in the billing and collecting of payments in respect to the providing of medical and health care services. So the answer here is yes, that is reportable. And remember that the real thing here is you're paying a C corp, and the corporate exception to reporting doesn't apply to something that's considered medical services. So collection and billing, that sort of thing, would fall under the heading of a medical expense if it's related to medical billing. Let's hear a quick word from our sponsor, IOFM, and then we'll get back to a few more questions. Many of these questions come from the Ask the Expert feature at IOFM, which you get access to as a member. It's one of the great benefits of joining IOFM. If you're in accounts payable, accounts receivable, cash management, finance. Join IOFM. Join some 10,000 of your peers who live and breathe this stuff. IOFM is more than just 1099s, by the way. IOFM covers all sorts of things. Cash management, they publish white papers, different surveys and fee studies and all sorts of useful things. Check them out at IOFM.com. And now back to the show. Okay, let's get back into the questions. Question: A resident physician provided ACLS instructor course services over$2,000, and now is planning to give a lecture without payment. If a book purchase of up to$200 is offered to the physician, should this be included on the 1099 NEC? ACLS, by the way, stands for I had to look it up, advanced cardiovascular life support training. So if this person, this resident physician, really is an independent contractor, then yes, compensation means more than just cash. It means non-cash compensation as well. So if you give a book to the instructor, that's added to the rest of their compensation. If the cash compensation was 2,000 and the book was 200, you would have$2,200 to report on the 1099. Now, one thing that I didn't get into in the answer to the person who asked this question is should it go on a 1099 NEC or is this 1099 miscellaneous box six? Food for thought, as they say. At any rate, it would be 1099able. Now, the one thing is, is this physician a contractor or are they an employee? If they're an employee, it would still be taxable to them, this non-cash book, but you'd be running it through their W-2 as wages. One more question, and this is a really long question here. I published the whole question on Substack. I'm just going to summarize it here on the podcast, though. There was a judgment, so a like a court settlement of$2,000 that this business had to pay to someone else. And everything took a considerable amount of time to wrap up. And so eventually, when it was actually time to pay the$2,000, they entered into an additional agreement to pay interest of$500. So$2,500 was the total payment to the other party. And this interest rate was calculated based on applicable statutory rates. So that part's legitimate. The question is: should the full$2,500 be reported as other income in box three of 1099 miscellaneous? Or is it$2,000 to the miscellaneous and$500 on 1099 INT? That's a good question. So here's that was a long question. But what it involves is there was a settlement agreement and there was an interest component to the settlement. It ended up being a$2,000 like damages claim or whatever the$2,000 was for and$500 of interest. So the question is, where does that$2,500 in total go? And normally when we talk about lawsuit settlements, we just say box three of the miscellaneous. And that's oftentimes true, but not always. The reality is with lawsuit settlements, if reportable, and the only types of settlements that are not reportable are things like medical damages and a few other things. Medical damages, return of capital. But most of the time a settlement is taxable and thus reportable. It actually can go on any type of information form. Any type of 1099 and sometimes even a W-2. Now, in this situation, there's the settlement itself of$2,000. That is box three of 1099 miscellaneous. The person who asked the question said there are no exemptions from reporting. It's not for medical damages or things like that. So$2,000 goes on the miscellaneous. The interest portion, the$500, could be reportable, but it's actually not because it's below the reporting threshold. So with interest in 1099 INT, there's two thresholds. There's a$10 threshold, which only applies to interest paid on accounts on deposits. So things like savings account interest paid by a bank. So the usual threshold that's in place for lots of different things used to be 600, now it's 2000, which is just for other types of interest paid in the course of a trade or business. So both types of interest go on a 1099 INT, but this interest is not bank account interest. So the$10 threshold doesn't apply. Instead, it's$2,000. And since the payment of$500 is well below that, no reporting is required. Now, one thing not asked, but let's bring it up anyway. If you transferred the money to the other party's attorney, which is oftentimes how settlement agreements go, so you send$2,500 to the other party's attorney, you would issue 1099 miscellaneous box 10, gross proceeds paid to an attorney, for the full$2,500 to the law firm. Then you would have a 1099 miscellaneous box three to the other party showing 2,000, and you wouldn't be required to issue anything on the interest portion. And then just for fun, because I know this is fun stuff and we don't want the podcast to ever end. Let's increase the dollar amounts and say that it was a$10,000 settlement plus$2,000 of interest. So total payment was$12,000. If$12,000 was sent to the attorney, you'd put$12,000 on 1099 miscellaneous box 10, then a 1099 miscellaneous to the other party, showing$10,000 in box three. And now because the interest in this example is$2,000, you would be at the reporting threshold. So you'd need to issue 1099 INT to the other party, showing$2,000 of interest paid. That'll do it for another edition of Ask the Experts, Ask the Experts Volume 2, and another episode of Information Return Intelligence sponsored by IOFM. Thanks for joining us, and we'll talk to you again next week. Titus Media Adventures.