IRS form 1099-MISC has been one of the most commonly issued tax forms to 1099 employees for a long time. However, despite being a common tax form, filing it is not always straightforward as some sections, such as box 6, can be pretty confusing.
The box reports health care and medical payments and can be hard to understand for taxpayers in some situations. This article aims to change this by explaining what the box reports when you need to file it and how to handle it when filing taxes.
What is Form 1099-MISC, and What Does it Report?
Form 1099-MISC is an IRS tax form that reports miscellaneous income such as prizes and awards, rents, royalties, legal fees, and payments to health care providers.
Before the 2020 tax year, businesses also used it to report non-employee income, but the IRS changed this by reintroducing the 1099-NEC as the primary tax form for reporting nonemployee compensation.
Businesses and other establishments that use the 1099-MISC have to send copies of the form to the IRS and 1099 employees by January 31.
Also, according to the IRS, the payments have to be paid through direct means such as cash or check. Indirect payment methods like PayPal and credit or debit card payments are reported on IRS form 1099-K.
What Does Form 1099-MISC Box 6 Report?
You should include information in box 6 if you make payments for medical and health care services to doctors, nurses, and other professionals in the fields. Also include information in this box for payments to hospitals.
The IRS requires you to report the entire payment in box 6 for both goods and services. Moreover, you still have to include information in box 6 even when you pay a corporation, such as when buying medical equipment.
Payments for goods will include paying for prescription drugs, vaccines, and injections, while services include lab services and drug screening.
Additionally, for the payment to qualify for reporting in box 6, it has to be $600 or more, should be made to a licensed physician, health care provider, or medical supplier, and should not include personal health care expenses.
Here is an overview of the healthcare payments that qualify for reporting in box 6:
1. Payments from Health Care Insurance Company
Any payments an insurance company makes to medical service providers are reportable on box 6. It includes payments that the company makes under health and sickness insurance programs.
It is important not to confuse this with insurance premiums payments made for fully insured health coverage. These do not qualify for reporting on box 6 since they are not for services performed.
2. Payments to Corporations for Medical Services
Businesses will not have to provide 1099s to S or C corporations as the IRS does not treat them as independent contractors regardless of their line of business. However, if you make any medical and health care payments to a corporation, you have to report this on box 6 of the 1099-MISC.
The IRS requires you to list the corporation rather than the individual providing the service when reporting these medical expenses. Therefore, you will not need to use any taxpayer identification number when reporting this expense for tax filing.
Health Care Payments that You Should Not Report on Box 6
Not all the payments you make for health care and medical services qualify for reporting in box 6. The IRS has some specific exceptions, which are essential to know, so you always file an accurate tax return.
Here is an overview of some of these box 6 exceptions:
1. Non-profit hospital payments
The IRS considers non-profit hospitals to be tax-exempt institutions, given that they are set up to offer health care services to the poor in the society, free of charge.
Besides charitable hospitals, those set up for education, scientific or religious purposes can also qualify for tax exemption. Therefore, any payment you make to them does not require inclusion in box 6.
Likewise, you will not be required to have information on box 6 if the payments are made to an extended care facility owned by the US government. Government-owned hospitals and extended care facilities are also exempted from paying taxes.
2. Any payments made to pharmacies
The IRS treats pharmacies as retailers and not institutions offering medical services. Therefore, any payments you make to a pharmacy do not require reporting on box 6.
Pharmacies operate on the same tax guidelines as other retailers that sell non-medical goods. If you make payments for drugs and other medical supplies to a pharmacy within the tax year, you will not need to issue a Form 1099-MISC for this.
3. Medical supplies rents
Payment for rents, including medical supplies lease, will be reported on Form 1099-MISC box 1. If you pay to lease medical supplies like sterilizers, this payment should go to box 1 despite being a medical expense.
4. Health Reimbursement Arrangement (HRAs) and Flexible Savings Accounts (FSAs)
Employers will use various other methods to provide health insurance coverage to their employees and not just employer-provided coverage. One such method is the health reimbursement arrangement that refunds the employees what they spend on their medical expenses up to a certain amount.
These reimbursements and other employer perks, such as flexible savings accounts (FSAs), are tax-free, and so they do not require reporting on Form 1099-MISC box 6 as they do not add up the taxable income.
5. Medical testimony
Payments for medical expert witness testimony for a court proceeding are not a payment for health care service, so you cannot report them on box 6.
Instead, this expenditure will be reported on 1099-MISC box 7 as the IRS requires you to treat it as a type of legal service.
Although payment is to a medical expert to share information related to their expertise, it is provided as legal services and thus, you cannot include it in box 6.
How to Handle 1099-MISC with Information in Box
When you receive a 1099-MISC with information on box 6, you need to report the payment receipt as a taxable income. Also, note that the IRS already has a copy of the form. Therefore, you are likely to be flagged for a tax audit for underreporting if you leave out any income.
However, the type of entity you operate or your business structure determines how you report this information. For example, if the recipient is an individual taxpayer, they will only need to use the information in the form to calculate their business income and the amount they owe in taxes. Individual taxpayers do not have to attach the form when filing taxes.
Sole proprietors, independent contractors, and pass-through entities will be required to report information on box 6 on line 1 of the first part of their Schedule C (IRS Form 1040).
It is vital for an independent contractor to remember that a business or client that provides a 1099-MISC with information on box 6 will not withhold any of their taxes. Therefore, it is the responsibility of the self-employed individual to pay all taxes related to information in the box.
S and C corporations that receive form 1099-MISC with information on box 6 should report the gross receipts in IRS Form 1120-S and IRS Form 1120, respectively. Corporations should treat the information on these forms as they treat all other income sources.
Will the 1099-NEC Affect Reporting for Health Care Services?
The reintroduction of the 1099-NEC from the 2020 tax year has forced more changes in IRS Form 1099-MISC than just how nonemployee compensation is reported. However, the change has not affected box 6 as it still reports medical and health care payments as before.
Reporting payments to self-employed medical and health care service providers can be confusing since the 1099-NEC reports all compensations for nonemployees. However, the IRS clarifies that you should still report these payments on box 6. To avoid confusion, you should acquaint yourself with the IRS instructions for 1099-NEC and 1099-MISC.
Who are the people providing health care services?
You will often come across the term "persons providing health care services" when trying to figure out when to fill out box 6. Understanding this term makes it easy to tell when to add information in the box or leave it empty.
That said, the term includes payments for medical and health care expenses such as injections, medications, and other services or goods. These services and goods can be from doctors, nurses, hospitals, and even corporations.
If you are paying for both medical services and goods, the IRS requires you to include the total amount you pay, not the individual items' costs. For example, you typically need to pay for consultation and medication or vaccine when you book an appointment with a physician. You should report payments for these goods and services as one item using the total amount you pay.
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IRS Form 1099-MISC box 6 records all payments and fees for medical services and health care. Even with the recent changes from the reintroduction of the 1099-NEC, the purpose of this box remains the same.
As a business or employer that makes a lot of payments for these services and goods, it is crucial to know when to include information in this box and the IRS exceptions.
If you still find things confusing, you should check the IRS website for more information or seek tax advice from a tax professional.